MASTER 
NEGATIVE 

NO.  95-82498- 1 2 


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Author: 


Baker,  Henry  Felt 


Title: 


Banks  and  banking  in  the 
United  States 

Place: 

Boston 

Date: 

1853 


MASTER   NEGATIVE  * 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


ORIGIK"   MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


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Baker,  Henry  F[elt] 

Banks  and  banking  in  the  United  States.    By  Henry  F. 

Baker  ...    Boston,  Ticknor,  Reed,  and  Fields,  1853. 
in  1. 


2  V.    23i 

Vol.  2  has  on  t.-p. :  "Part  ii :  Relating  to  the  states  of  Kentucky,  Ohio, 
Indiana,  and  Illinois,"  and  is  pub.  by  C.  F.  Bradley  &  co.,  Cincinnati. 


1.  Banks  and  bankin 

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Entered  according  to  Act  of  Congress,  in  the  year  18M, 
BY    HENRY   F.    BAKER,  _1 

«a  U.e  ClerV.  Office  of  the  District  Co.rt  of  the  District  of  Ma.achu«.es. 


/ 


■  O  8  T  O  N ; 

Thurston,  Torrjr,  &  Emerson,  Printers. 


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J)  133 
317 


"Ba.T>Km^ -AJ.S 


BANKS  AND  BANKING. 


J- 


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1 


The  banking  interests  of  our  country  have  risen  to  an  im- 
portance and  magnitude  and  exert  a  sway,  secondary  only 
to  that  of  the  National  Government  itself.  Deeply  affecting 
the  trade,  property,  and  business  pursuits  of  the  whole  people, 
it  is  obvious  that  a  right  or  wrong  policy  in  the  system  of 
Banking  affects  the  prosperity  of  the  entire  community,  and 
it  is  therefore  the  subject  of  constant  watchfulness  and  dis- 
cussion. Enlightened  statesmen,  political  economists,  and 
experienced  financiers  have  advocated  the  most  contradictory 
theories,  and  have  introduced  into  the  various  States  of  our 
Union,  systems  totally  dissimilar  to  each  other,  which,  after 
experimental  trials,  have  been  substituted  by  other  plans; 
but  none  of  them  have  yet  obtained  universal  assent  and 
adoption.  We  have,  accordingly,  banks  of  discount  and 
deposit,  with  a  limited^  circulationj  banks  of  deposit,  ex- 
change, and  more  extended  circulatij)nT  ajid  banks  ^f  circu- 
lation chiefly y  with  but  liniited^meansjor  discount.  Some 
are  established  upon  a  purely  specie  basis ;  some  upon  public 
stocks,  bonds,  mortgages,  of  nominal  value;  some  under 
general  banking  laws^  safety  fund  laws,  and  free  banking 
principles;  some  are  managed  by  discreet  and  responsible 
J&ectors,  and  others  by  inexperienced  and  reckless  specula- 
tors, whose  only  aim  is  personal  aggrandizement.  While  this 
diversity  of  practice  exists  in  regard  to  the  system  of  banking, 
there  is  a  still  wider  difference  in  relation  to  the  circulation 
of  bank  notes,  and  it  is  to  the  examination  of  these  subjects 
that  the  following  remarks  are  devoted. 


I 


1 


I 

I 


I 


Our  banks  were  originally  founded,  and  are  still  theoreti- 
cally so,  upon  the  contribution  of  the  surplus  means  or  capital 
of  individuals,  who  unite  in  forming  a  joint  stock  company 
for  the  purpose  of  obtaining  a  profit  on  the  funds  thus  sub- 
scribed, and  which  were  remaining  unproductive ;  and  by 
loans  made  to  individuals  who  need  funds  for  business  or 
speculative  operations,  facilitate  the  transactions  of  trade,  and 
enable  others  to  secure  profits  which  would  otherwise  be 
beyond  their  reach.  By  these  facilities,  the  manufacturer  is 
enabled  to  erect  more  extensive  buildings,  procure  his  expen- 
sive machinery,  and  supply  himself,  at  the  most  favorable 
moment,  with  a  stock  of  the  raw  materials  for  his  fabrics. 
From  this  source  the  merchant  obtains  his  funds  to  build  his 
costly  freighting  ship,  or  convert  the  proceeds  of  his  return 
cargo  into  specie  or  merchandise  for  new  enterprises ;  the 
builder  is  furnished  with  the  means  to  erect  new  edifices  for 
comfort  and  use ;  the  land  speculator  can  seek  new  sites  for 
improvement  and  occupation;  and  the  mechanic  can  enlarge 
his  business,  and  extend  the  sphere  of  his  operations  beyond 
the  requisition  of  his  own  immediate  neighborhood,  and 
furnish  supplies  of  the  varied  articles  of  luxury,  use,  or 
necessity,  even  to  the  remotest  part  of  our  country.  The 
trader,  too,  who  is  the  intermediate  factor  between  the  pro- 
ducer and  the  shipper,  is  greatly  aided  in  his  operations  by 
these  bank  facilities,  and  all  the  transactions  of  demand  and 
supply  are  essentially  accelerated.  By  all  these  the  capitalist 
derives  a  profit  from  his  dormant  funds,  the  inert  avail  them- 
selves of  the  enterprise  and  sagacity  of  the  more  energetic, 
and  those  whose  property  is  vested  in  the  hands  of  trustees  or 
guardians  are  enabled  to  rely  with  security  and  certainty 
upon  the  dividends,  which  prudent  directors  are  anxious  to 
earn  for  them.  Hence,  new  activity  is  imparted  to  trade,  new 
facilities  furnished  to  enterprise,  railroads  are  constructed, 
factories  erected,  villages  become  towns  and  cities,  farms  are 
rendered  more  valuable,  agricultural  products  find  new  mar- 
kets, and  the  country  at  large  becomes  enriched.  Strike  out 
of  existence  the  facilities  which  banking  capital  creates,  and 
how  rapidly  would  all  our  industrial  pursuits  retrograde  and 
decay.     Agriculture,  commerce,  manufactures,  and  the  arts 


would  languish  by  impoverishment,  and  a  general  gloom 
would  settle  down  upon  the  whole  surface  of  the  com- 
munity. 

If  such,  then,  are  the  objects  and  results  of  banking  opera- 
tions, who  can  desire  to  preclude  or  embarrass  them  ?  Surely 
no  lover  of  his  country's  welfare,  or  of  the  true  interests  of 
the  community  in  which  he  dwells.  Next  to  sound  political 
measures,  social  order,  and  right  education,  nothing  is  of 
more  vital  importance  than  our  monetary  condition,  and  this 
mainly  depends  upon  our  banking  institutions.  No  matter 
how  fertile  may  be  our  farms,  if  we  cannot  dispose  of  the 
surplus  produce,  we  have  merely  the  means  of  subsistence. 
We  may  fill  our  manufactories  with  the  results  of  labor,  but 
if  we  cannot  find  a  market  for  our  wares,  the  implements 
must  cease  to  be  employed,  as  well  as  the  hands  which  used 
them.  Our  ships  may  make  a  voyage  to  India  or  China,  but 
if  their  cargoes  must  be  sold  and  paid  for  before  they  are 
refitted  for  a  new  adventure,  what  precious  time  must  be  lost. 
And  so  we  might  carry  out  the  calculation  into  every  depart- 
ment of  active  life,  but  it  is  useless  to  pursue  it  It  is 
sufRcient  to  state,  that  it  is  utterly  impossible,  in  the  present 
age  of  the  world,  to  hold  our  place  in  it,  much  less  to  advance 
in  importance,  without  the  facilities  which  banking  institutions 
afford.  If,  then,  they  are  of  such  weighty  importance  to  the 
prosperity  of  the  community,  it  is  certain  that  means  can 
be  devised  to  control  their  operations,  and  render  them  the 
servants  and  not  the  masters  of  the  public;  subservient  to 
our  use  like  the  element  of  fire,  which  ministers  to  our  com- 
fort without  being  allowed  to  gain  an  ascendancy  beyond  our 
control.  In  a  word,  banking  institutions  must  be  reduced  to 
a  system,  simple  in  its  regulatib if,  restricted  in  its  pow«r^ 
founded  upon  a  substantial  basis,  watched  with  a  jealous 
eye^  but  with~generous  privitegi^  "To  "eitable  those-who 
embark  in  it,  the  full  reward  to  which  their  confidence  is 
entitled.  During  the  last  twenty-five  years,  the  system  has 
been  altered  from  the  original  plan,  in  some  of  the  States 
of  the  Union,  only  twice.  Originally  established  upon  a 
purely  specie  basis,  its  first  modification  was  the  safety 
fund  system,  and  the  second,  the  free  banking  system.     The 


/ 


original  plan  allowed  three  doUars  of  c-ency  for  one  of 
metallic  deposit,  but  in  the  most  conservative  State,  t  is  now 
Se^to  125  per  cent,  of  the  capital,  and  more  than  two 
Ss  of  this  privilege  is  practically  -available,  epb^^ 
some  of  the  smaller  banks,  who  make  great  eftorts  to  extend 

''?bffiMtn"ovation,  the  safety  fund  system,  was  adopted 
in  New  York  in  1829,  and  required  from  each  bank  an  annual 
contibution  of  half  per  cent  of  its  capital  to  a  common   unj^^ 
to  be  deposited  with  the  State  Treasurer  as  a     bank  fund, 
Intent  amounted  to  three  per  cent  of  the  capital  of  each  bank 
Ind  was  to  be  applied  to  the  payment  of  the  <lebts;J  ^ 
insolvent  bank  contributing  to  the   same,  and  in   ca  e  the 
fund  was  at  any  time  diminished  by  payments  from  it,  the 
banks  were  again  required  to  make  their  annu^  contnbu^.^^^^^ 
till  each  had  in  deposit  the  three  per  cent  on  is  capital  stock 
For  a  series  of  years  this  system  was  '*'g».';'lf  ;;f  Jj'^ 
but  the  sudden  failure  of  ten  banks  with  a  capital  of  $2,800,000 
occasioned  a  loss  of  more  than  $2,500,000,  besides  the  entire 
annihilation  of  their  capital ;  and  the  dismay  was  so  great  and 
the  result  so  astounding  as  well  as  >nconce,vable,  that  the 
^  safety  fund  system  was  abandoned,  an.dJk£j^.^-§P^of 
j  free  Ukiflg  under3._£eneral  law  was  -bst.tuted,  and  has 
'  acquired  general  favor  in  the  State  where  it  originated,  and 
been  adopted  in  other  States  as  more  perfect  than  any  hereto- 
fore  devifed.     it  has  now  been  in  practical  operation  in  New 
1    York  neariy  fifteen  years,  and  has  at  various  periods  been 
amended  with  a  view  of  providing  more  perfect  security  and 
LTy  be  regarded  as  perfect  as  legislative  acts  can  render  it 
wJ  propofe  to  review  each  of  these  systems  ,n  detail,  and 
^  select  the  States  of  Massachusetts,  Ohio,  and  New  \  ork,  as 
illustrations  of  the  operation  of  the  three  difterent  systems  m 

X  rvrwh^eifr  Massachusetts  Bank  was  chartered  in 
Boston,  gold  and  silver  were  the  only  true  standards  of  va  ue 

in  dimity  with  the  usage  in  all  civilised  countries,  and  th. 
was  the  firsi  effort  in  the  United  States,  subsequent  o  our 
Eevolution,  to  introduce  a  paper  currency  ^'J^'^^l^"*  ^X;;* 
Gold  and  silver  had  long  been  regarded  as  the  best  standards 


4.  i 

i 


of  value,  because  they  are  the  best  and  most  convenient 
instruments  of  exchange,  and  possess  an  intrinsic  worth, 
corresponding  with  the  cost  and  trouble  of  production,  and 
neither  deteriorate  by  time,  nor  diminish  in  value.  They  are 
the  best  adapted  for  the  basis  of  engagements,  receivable  or 
payable  at  a  distant  period,  and  being  divisible,  and  univer- 
sally desirable,  their  appreciation  is  uniform  in  every  country. 
At  that  period,  the  trade  of  our  country  was  limited  in  its 
extent.  Manufactures  were  carried  on  by  individual  exertions 
only;  the  markets  for  them  were  circumscribed  within  the 
narrow  precincts  of  their  immediate  neighborhood;  and  the 
products  of  agriculture  were  exchanged  for  articles  of  domestic 
use.  Our  commerce  was  then  in  its  infancy,  and  was  princi- 
pally employed  in  the  conveyance  of  our  agricultural  products, 
and  the  proceeds  of  our  fisheries,  to  the  West  Indies,  South 
America,  and  Europe,  returning  home  with  such  productions 
of  those  countries,  as  were  required  for  immediate  consump- 
tion or  use ;  and  bank  facilities  were  hardly  needed  in  these 
operations. 

But  the  unparalleled  increase  of  our  navigation  and  com- 
merce soon  created  a  class  of  traders,  who  purchased  and  held 
larger  stocks  of  merchandise  for  their  business,  and  whose 
transactions  were  profitably  carried  on  between  the  merchant 
and  the  agriculturist,  the  importer  and  the  consumer,  the  ex- 
porter and  producer.  In  proportion  as  trade  and  commerce 
increased,  their  operations  called  into  requisition  additional 
capital,  and  bank  facilities  were  more  or  less  frequently  needed. 
The  bank  restrictions  of  those  early  days  allowed  only  "  $3000  ^j  \. 


to  any  individual  at  one  time,  and  but  $5000  in  the  aggregate 
to  any  one  borrower,"  and  the  loan  was  only  granted  "for 
sixty  days,  upon  merchandise,  bullion,  or  other  securities  as  ( 
collateral,  and  for  thirty  days  only  on   personal  obligations,  | 
with  two  securities,"  without  the  privilege  of  renewal  on  any  i 
terms,  "  but  the  money  must  be  paid  when  it  becomes  due." 
These  stringent  regulations  did  not  meet  the  wants  of  the 
community,  and  as  trade  increased,  new  banks  were  created, 
with  more  liberal  views,  but  still  conducted  with  extreme  cau- 
tion.    The  merchants  having  gradually  adopted  the  practice 
of  selling  their  goods  on  a  credit,  and  requiring  Spanish  milled 


8 


If 


dollars  for  shipment  to  India  and  China,  or  doubloons  for  the 
purchase  of  the  produce  of  Cuba  for   Europe,  they  became 
dependent  upon  the  banks  for  facilities,  and  these  institutions 
were  multiplied  conformably  with  the  wants  of  the  commu- 
nity, and  the  expansion  of  trade.     With  their  increase,  the 
prosperity  of  the  country  constantly  but  unequally  advanced, 
until  we  reached  that  crisis  in  our  national  affairs,  which  even- 
tually involved  us  in  a  second  war  with  Great  Britain,  and  ter- 
minated so  satisfactorily  to  all  parties  in  1815.     During  this 
entire  period,  the  bank  notes  of  Massachusetts  were   at  all 
times  convertible  into  specie  at  par,  although,  at  the  close  of  the 
war,  those  of  New  York,  Philadelphia  and  Baltimore  suffered 
material  depreciation,  in  consequence  of  their  suspension  of 
specie  payments;  whereas,  with  the  exception  of  a  single  year, 
during  the  financial  crisis  of  1835-38,  when  all  the  banks  in 
the  country  suspended  cash  payments,  the  banks  of  Massa- 
chusetts have  redeemed  their  paper  on  presentation,  and  fur- 
nished the  clearest  illustration  of  the  fact,  that  an  adherence 
to  sound  banking  principles  upon  a  specie  basis,  is  auxiliary 
to  a  high  degree  of  prosperity.     If  we  look  at  the  condition  of 
Massachusetts  at  the  present  day,  we  shall  find  her  commerce, 
manufacturing  interests,  railroads,  internal  improvements  and 
mechanic  arts,  all  in  the  highest  degree  of  prosperity,  while 
the  interests  of  education,  morality,  religion,  and  all  the  chari- 
ties of  life,  are  provided  for  with  princely  munificence,  and 
science,  literature,  and  the  fine  arts  have  found  a  congenial 
home.     In  all  that  constitutes  the  true  dignity  and  greatness 
of  a  State,  Massachusetts  will  bear  a  favorable  comparison 
with  any  of  her  compeers;  and  although  small  in  territorial 
extent,  her   influence  is  as  widely  felt,  her  resources  are  as 
ample,  her  wealth  as  substantial,  and  her  foreign  credit  as 
high,  as  that  of  any  other  State  in  our  Union. 

The  origin  of  this  success,  is  the  steady  labor,  resolute  per- 
severance, strict  economy,  and  deep  sagacity,  which  charac- 
terize the  men  of  Massachusetts,  and  the  results  of  these  have 
been  accumulated  in  bank  capital,  which  has  again  dispensed 
the  benefits  which  created  its  existence.  Like  a  generous 
fountain,  its  copious  streams  have  irrigated  the  soil,  whence  it 
received  its  supplies,  every  drop  of  which  percolates  and  per- 


meates to  its  pristine  source,  without  perceptible  diminution, 
and  if  undisturbed  by  extraneous  causes,  may  still  flow  on 
forever. 

As  the  banks  were  originally  established  on  a  specie  basis, 
and  above  all  were  managed  by  discreet  and  responsible  direc- 
tors, the  public  were  satisfied  with  their  security  and  ready 
accommodations.  When  any  one  of  them  has  shown  signs 
of  weakness,  the  public  have  been  put  upon  their  guard,  and 
the  Legislature  have  been  prompt  to  impose  new  restrictions, 
whenever  experience  has  suggested  the  necessity.  As  it  now 
stands,  the  banking  laws  of  Massachusetts  are  as  perfect  for 
the  protection  and  security  of  the  bill-holder,  as  human  laws 
can  make  them.  They  require  that  "  No  bank  shall  go  into"^ 
operation,  until  one  half  of  its  capital  is  paid  in  gold  and  sil-/ 
ver,  by  the  stockholders,  towards  the  payment  of  their  respec-V 
tive  shares,  and  not  for  any  other  purpose,  and  that  it  shall 
remain  in  the  vaults  of  the  bank,  as  a  part  of  the  capital ;  "  and 
bills  cannot  be  issued  for  more  than  25  per  cent,  beyond  the 
amount  so  paid  in,  nor  can  a  bank  extend  its  lines  of  discount 
beyond  double  the  amount  of  capital  paid  in,  however  large 
or  permanent  its  deposits  may  be.  The  stockholders  are  also 
liable,  individually,  for  the  payment  of  all  the  bills  issued  by 
the  bank  ;  and  thus  the  community  have  ample  security  for  the 
redemption  of  the  bank  bills;  first,  in  the  capital  originally 
paid  in ;  second,  in  the  commercial  paper  taken  for  the  notes 
paid  out;  and  third,  in  the  individual  responsibility  of  the  stock- 
holders. 

This  last  requisition  has  been  regarded  as  too  exacting  and 
onerous,  but  it  ought  not  so  to  be  viewed.  A  number  of  in- 
dividuals associate  together,  and  form  a  joint-stock  company, 
for  the  purpose  of  profit.  They  elect  their  own  officers  and 
managers,  in  whom  they  have  confidence,  and  whom  they  thus 
constitute  their  agents.  They  have  full  power  to  ascertain 
the  condition  of  the  bank,  publicly  declare  the  amount  of 
their  profits,  in  which  they  participate,  and  enjoy  the  privilege 
of  issuing  their  promissory  notes  without  interest,  as  the  money 
of  the  country.  If  the  bank  is  unfortunate,  is  there  any  rea- 
son why  they  should  not  suffer  the  loss,  as  well  as  share  the 
profits  ?     Is  the  community  to  suffer  by  the  mismanagement 


I 


of  any  of  the  partners  in  the  business,  when  perhaps  their  own 
neglect  in  relation  to  the  management  of  the  bank  affairs  has 
occasioned  its  downfall  ?     If  partners  in  other  occupations  are 
liable  for  the  losses  of  the  firm,  through  mismanagement  or 
misfortune,  there  is  no  substantial  reason  why  the  partners  in 
a  bank  should  be  exempt  from  the  same  liability.     Severe, 
however,  as  this  law  may  be  regarded,  it  is  the  condition  upon 
which  every  stockholder  in  a  bank  in  Massachusetts  now  holds 
his  shares,  and  he  is  therefore  deeply  interested  in  the  condi- 
tion of  the  bank,  since  he  can  make  no  valid  transfer  of  his 
interest  therein,  if  the  bank  is  insolvent.     The  last  returns  of 
the  banks  in  this  State  were  forty-three  millions  of  capital,  and 
twenty  one  millions  of  circulation ;  the  bill-holders  then  have 
the  responsibility  of  the  stockholders,  in  addition  to  the  com- 
mercial paper,  taken  in  exchange  for  the  bank  notes  issued, 
and  the  aggregate  is  eighty-five  millions  of  dollars,  as  security 
of  the  payment  of  one  quarter  of  the  amount.     In  addition  to 
this,  the  Suffolk  Bank  system  exercises  a  constant  watchful- 
ness over  the  issues  of  every  bank  in  the  State,  and  not  one 
could   venture   upon  an    excessive    issue   of  its   bills,   with- 
out immediate  exposure.      And  finally,  there   are  the   bank 
commissioners,  whose  special  duty  it  is  to  examine  into  the 
condition  of  every  bank  in  the  State,  and  personally  examine 
not  only  the  liabilities  of  the  banks,  but  the  actual  value  of 
their  assets.     It  seems  impossible  to  suggest  any  better  sys- 
tem of  banking,  and  yet  individuals  have  been  found  restless 
enough  to  attempt  a  change  of  this  system,  and  introduce  a 
free  banking  law  for  the  better  protection  of  bill-holders !     It 
is,  however,  a  severe  commentary  on  the  value  of  the  labors 
of  these  legislative  philanthropists,  that  no  set  of  men  have 
yet  availed  themselves  of  the  privilege,  during  the  two  years 
which  have  elapsed,  since  the  act  was  passed,  although  appli- 
cations for  seventeen  millions  additional  bank  capital  have 
been   subsequently  made  to   the    Legislature   of    the    State. 
During  nearly  seventy  years,  which  have  elapsed  since  the 
establishment  of  the  first  bank  in  Massachusetts,  the  country 
has  passed  through  the  various  vicissitudes  of  prosperity  and 
adversity,  commercial  seizures  and  embargoes,  peace  and  war, 
growing  out  of  the  continental  troubles  in  Europe;  and  when, 


II 


after  the  general  peace  of  1815,  by  the  indomitable  energies 
of  our  countrymen,  the  nation  again  emerged  from  the  thick 
darkness  of  despondency,  and  resumed  her  commercial  pur- 
suits, it  was  with  a  buoyancy  and  daring  which  astonished 
the  world  with  her  unprecedented  success.  During  the  last 
thirty-five  years,  we  have  been  in  imminent  peril  of  war,  once 
with  France,  twice  with  Great  Britain,  once  with  Spain,  and 
engaged  in  actual  hostilities  with  Mexico,  to  say  nothing  of 
Austria  and  Peru,  which  were  of  minor  importance;  and 
although  these  troubles  have  all,  with  one  exception,  been 
amicably  settled  without  an  appeal  to  arms,  still  the  effects 
have  been  felt  in  our  financial  circles,  producing  those  fluctu- 
ations which  operate  directly  upon  the  interests  of  trade. 

Through  all  these  perilous  periods,  Massachusetts  has  proud- 
ly sustained  herself,  yielding  only  once  to  the  financial  crisis, 
which  prostrated  every  bank  in  the  country  for  one  brief  year, 
and  then  with  reluctance.  A  system,  then,  which  has  for 
seventy  years  been  subjected  to  such  severe  experience  and 
trial,  through  such  various  vicissitudes,  must  possess  ele- 
ments of  vitality  and  strength,  which  should  entitle  it  to  the 
confidence  and  support  of  the  commercial  community,  how- 
ever antiquated  it  may  appear,  in  comparison  with  those 
subtle  theories  which  our  modern  financiers  so  strenuously 
advocate. 

Let  us  now  examine  the  safety  fund  system,  which  was  first 
adopted  in  New  York,  in  1829,  and,  after  nine  years'  trial, 
abandoned  for  the  free  banking  system,  which  was  substituted 
in  April,  1838.  As  before  stated,  the  safety  fund  was  obtained 
by  a  tax  upon  the  banks,  of  half  per  cent,  per  atmum,  for  the 
redemption  of  the  notes  of  insolvent  banks,  and  for  their  other 
liabilities ;  and  ten  of  these  banks  have  absorbed  more  than 
two  millions  and  a  half  dollars,  of  which  about  $1,550,000 
were  for  redemption  of  bills,  and  more  than  one  million  for 
other  liabilities.  If  the  fund  had  been  appropriated  only  to 
the  payment  of  the  bills,  it  would  have  been  amply  sufficient 
for  this  purpose,  as  at  the  time  of  the  failure  of  the  banks  it 
amounted  to  $1,876,000 ;  but  the  surplus  has  been  absorbed 
by  the  other  debts  of  these  banks,  together  with  $900,000 
more  for  their  debts  to  depositors  and  other  creditors.     Our 


13 

late  excellent  chief  magistrate,  tiien  comptroller  of  the  State 
of  New  York,  remarks,  in  one  of  h.s  reports,  "That  banks 
which  enjoy  the  exclusive  privilege  of  furnishing  a  currency, 
Thould  be  required  to  contribute  something  to  a  common  fund 
to  make  that  currency  safe  and  secure,  seems  reasonable  and 
iTr;  but  what  propriety  »'  J-«-  -"  ^^^^^  "^  m  requmng 
Cbanks  to  contribute  to  a  g--^  ^^ ^^  ^^^^^P^s  „o 
or  other  general  creditors  of  the  individual  banks?     It  is  no 
exclusive  privilege  of  a  bank  to  receive  deposits,  or  to  contract 
gene"  1  debts,  and  no  reason,  therefore,  is  seen,  why  this  fund 
should  be  applied  to  pay  them."  ,r    ,    • 

Cs  it  wm  be  seen  that  the  Legislature  of  New  York,  m 
attempting  more  than  could  be  accomplished,  by  paying  de- 
pS    of  the  insolvent  banks  out  of  the  safety  fund  have 
LCsted  it,  and  mortgaged  all  its  ^^t-  r-ipt.  ^^^^^^^^^^ 
holders  will  have  no  longer  any  security,  during  the  remainder 
rf  the  term  which  some  of  the  banks  have  yet  to  run.     In 
f846  the  new  constitution  was  adopted,  which  prohibits    he 
i^JLt^re  from  "granting  any  special  <^^^^J>^J^Z 
™,moses    but  that  corporations    or    associations    might  be 
Cd  under  general  laws."     The  State  of  Ohio,  however  - 
IftS   adopted  the  safety  fund  system,  and  established  their 
S!;  BaTk  upon  the  pLciples  which  N- Jo'^  J.<i^^- 
doned      The  bank  capital  of  Ohio  is  _about   i^f-^^     i 
thTch  the  S-tatT^aSk  forms  less  than  four  and  TOf  mil. 
V         J  dollars      The  branches  of  this  bank  are  under  the 
i'eUion  o    a  wd  of  control,  who  ftiSiFsh  all  the  notes 
Shed  ?^  circulation,  which  is  limited  to  double  the  amount 
of  to  capital  on  the  first  hundred  thousand  dollars,  one  hun- 
If  and  fifty  per  cent,  on  the  second  hundred  thousand  do  1- 
^i  o"part  Lreof,and  one  hundred  and  twenty-Jve  fifir  cent 
Z  third  hundred  thousand  dollars,  or  part  thereof.     But 
^e  brat  h  htrover  ?200,000,  and  that  is  «250,000     Each 
Tn^  is  required  to  deliver  to  the  board  of  control  ten  per 
rn^of  theliount  required  for  circulation,  either  m  stocks  of 
SWte,  or  of  thTUnited  States,  or  the  amount  in  money 
to\e  app  ied  to  the  redemption  of  the  notes  in  circulation  of 
any  one  or  more  of  the  branches,  which  rjiay  ^-1  to  -<leem  its 
noles  and  each  solvent  branch  is  required  to  contribute  in  the 


13 


ratio  of  the  circulation  to  which  it  is  entitled  to  the  sum 
necessary  for  redeeming  the  notes  of  the  failing  branch,  to  be 
remunerated  from  the  safety  fund,  as  soon  as  sales  of  the 
stocks  in  the  hands  of  the  board  of  control  can  be  effected. 
Whenever  a  branch  fails  to  redeem  its  notes,  all  its  property, 
notes  and  assets,  pass  into  the  hands  of  the  board  of  control, 
who  appoint  a  receiver  to  settle  its  affairs,  and  convert  its 
assets  into  money ;  who,  after  reimbursing  the  amount  due 
the  safety  fund,  pays  the  remaining  liabilities  of  the  branch, 
and  finally  distributes  the  balance  among  the  stockholders,  in 
proportion  to  the  stock  by  them  respectively  held.  The  board 
of  control  have  the  power  to  prescribe  rules  for  the  settlement 
of  the  balances  between  the  different  branches,  to  visit  person- 
ally, or  by  agents,  the  various  branches,  whenever  they  think 
proper,  and  examine  their  books,  accounts  and  securities,  and 
require  a  statement  of  their  condition,  as  often  as  they  think 
proper,  and  can  reduce  the  circulation  of  any  particular 
branch,  if  they  deem  it  necessary  for  the  protection  of  the 
other  branches,  or  the  public  at  large.  Each  branch  is  in 
other  respects  an  independent  bank,  having  its  own  separate 
stockholders,  who  elect  their  own  directors  and  divide  their 
own  profits.  But  one  branch  has  been  embarrassed  since  the 
adoption  of  this  system,  and  the  loss  incurred  was  eighty 
thousand  dollars,  which  the  other  branches  paid,  and  the  bank 
then  passed  into  other  hands,  and  is  still  in  existence.  The 
old  banks  have  a  capital  of  less  than  two  millions  of  dollars, 
and  the  independent  banks  less  than  one  million,  and  these 
latter  are  required  to  deposit  with  the  State  treasurer,  certifi- 
cates of  stocks  for  the  entire  amount  which  they  have  in  cir- 
culation, which  cannot  exceed  three  times  the  amount  of  their 
capital  actually  paid  in.  Such  is  a  condensed  statement  of 
the  safety  fund  system  of  banking  in  Ohio.  There  are  forty 
branches  of  the  State  Bank,  who  have  a  circulation  of  about 
$8,290,000,  to  provide  for  which,  there  is  a  safety  fund  in  the 
hands  of  the  board  of  control  of  about  -  -  $875,000 
Specie  in  the  vaults  of  the  branches,  -  -  -  1,854,230 
Eastern  exchange,      ••-••-        2,000,000 


Constituting  an  aggregate  of 


-    $4,729,230 


14 


16 


as  available  means  to  meet  their  circulation,  and  it  certainly 
exhibits  a  strong  position;  and  when  we  consider  that  Ohio 
has,  during  the  last  year,  exported  upwards  of  forty  millions 
in  value,  of  her  surplus  produce  to  other  States,  we  must  con- 
fess that  the  resources  of  the  State  will  bear  a  favorable  com- 
parison with  those  of  any  other  in  the  Union.  The  value  of 
the  landed  property  in  the  State  is  estimated  at  five  hundred 
millions  of  dollars,  and  on  this  amount  a  clear  profit  is  real- 
ized beyond  the  expense  of  subsistence  of  more  than  eight  per 
cent,  per  annum,  from  agricultural  pursuits.  This  exhibits  a 
high  degree  of  prosperity,  and  the  banks  necessarily  share  in 
this  accumulation  of  wealth. 

In  the  selection  of  Ohio,  as  an  illustration  of  the  working  of 
Ihe  safety  fund  system,  we  have  selected  a  State,  which,  in 
proportion  to  its  trade  and  population,  has  a  very  small 
amount  of  bank  capital,  and  which  has  been  distributed 
through  its  various  counties,  with  reference  to  the  wants  of 
each,  with  great  impartiality.  Each  branch  is  represented  in 
the  board  of  control,  who  have  the  supervision  of  the  wRole, 
ajid  can  restrict  the  circulation  in  the  manner  already  stated, 
or  reduce  it,  when  there  is  any  danger  apprehended,  at  their 
own  discretion.  This  system  is  regarded  in  Ohio  as  perfect 
as  legislation  can  make  it,  and  is  certainly  far  preferable  to 
the  New  York  law,  in  every  particular.  In  prosperous  times, 
it  secures  most  amply  the  payment  of  every  note  issued  by 
the  banks  in  this  State,  under  these  laws,  and  even  in  seasons 
of  depression  the  currency  would  rest  upon  a  substantial 
basis.  Even  if  the  cereal  crops  were  partially  destroyed  in 
any  single  year,  and  a  loss  of  twenty  millions  value  of  pro- 
duce be  the  consequence,  the  operations  of  trade  would  be 
seriously  affected,  and  Cincinnati  would  suffer  in  the  same 
way  as  New  Orleans  would,  if  the  cotton  crop  failed  in  the 
Mississippi  valley;  but  the  substantial  wealth  of  the  State 
would  remain  unimpaired,  and  the  loss  would  only  stimulate 
new  efforts  and  extended  cultivation.  The  banks  might  have 
their  eastern  balances  reduced,  but  the  demand  upon  them 
for  coin  would  be  very  limited,  since  the  public  confidence  in 
them  is  so  great,  that  their  bank  paper  is  held  equivalent  to 
specie.     The  conclusion  then  is,  that  in  such  a  State  as  Ohio, 


having  such  increasing  annual  resources,  with  a  banking 
capital  so  small  in  amount,  furnishing  a  restricted  circulation, 
distributed  by  local  banks  in  their  own  immediate  neighbor- 
hood, and  watched  by  a  jealous  supervision,  the  safety  fund 
system,  as  established  by  these  laws,  is  quite  as  secure  as  the 
specie  basis  would  make  it.  In  fact,  the  banks  have  an 
equivalent  to  specie  in  the  public  confidence,  which  is  so 
universal  throughout  the  State ;  and  even  if  the  currency  were 
doubled  by  the  banks  now  in  existence,  (if  it  were  authorized 
by  law,)  it  would  immediately  enter  into  circulation,  and  even 
then  be  found  inadequate  to  the  wants  of  the  community  in 
their  daily  payments  to  each  other.  In  fact,  the  want  of  this 
currency  is  so  seriously  felt,  that  the  bank  notes  of  the  ad- 
joining States  have  been  substituted  from  necessity,  to  supply 
the  circulating  medium.  In  admitting  that  the  safety  fund 
system  in  Ohio  is  unobjectionable,  and  that  the  banks  under 
these  laws  are  perfectly  safe  in  periods  of  prosperity,  or 
reverses,  it  does  not  necessarily  follow  that  in  other  States  the 
system  affords  equal  security.  In  Ohio,  the  natural  fertility 
of  the  soil  spontaneously  furnishes  wealth  to  the  inhabitants, 
and  cultivated  as  it  is  by  industry,  its  agricultural  products 
alone  furnish  a  mine  of  wealth  better  than  gold.  Purchases 
of  land,  not  of  fancy  stocks,  constitute  the  only  speculation, 
and  the  principal  use  of  bank  notes  is  paying  or  collecting 
debts,  buying  or  selling  commodities.  But  in  other  States 
the  case  would  be  widely  different,  for  no  others  possess  the 
natural  advantages  of  Ohio. 

The  principal  objection  to  the  safety  fund  system,  is,  that 
it  creates  a  fund  sufficient  to  give  credit  to  any  banking 
association  which  may  be  created  for  speculative  purposes, 
and  being  owned  by  parties  in  other  States  after  their  notes 
are  fairly  in  circulation,  the  capital  may  be  withdrawn, 
the  bank  declared  insolvent,  and  the  community  defrauded. 
Although  the  safety  fund  may  be  nominaily  large  enough  to 
cover  the  amount  of  these  insolvent  bank  notes,  it  is  usually 
made  up  of  bonds  and  mortgages,  w^hich  are  not  immediately 
convertible,  and  the  delay  in  redeeming  the  circulation  causes 
an  immediate  depreciation,  and  occasions  a  loss  to  such  un- 
fortunate holders  as  cannot  wait  for  the  ultimate  redemption. 


^_ 


■V  ^ 


16 


The  past  experience  of  New  York  has  shown  that  this  de- 
scription of  security  has  only  yielded  sixty-eight  per  cent,  of  the 
nominal  value  for  which  it  was  pledged,  and  the  State  stocks 
of  Indiana,  Illinois,  Arkansas,  Michigan  and  Alabama  realized 
from  fifty  to  seventy-three  per  cent,  of  their  nominal  value. 
Such  being  the  case,  there  is  only  a  partial  security  in  the 
system,  and  the  notes  of  such  banks  are  not  equivalent  to  gold 
and  silver  as  they  purport  to  be,  and  ought  not  to  circulate 
out  of  the  State  where  they  are  issued. 

Let  us  now  examine  the  free  bank  system  of  New  York, 
adopted  there  in  1838,  and  subsequently  in  several  other 
States  of  the  Union.  By  this  system  "  every  individual  and 
association  was  authorized  to  engage  in  the  business  of 
banking ;  and  on  depositing  with  the  comptroller  the  stocks  of 
the  United  States  or  of  any  State  which  should  be,  or  be  made, 
equal  to  a  five  per  cent,  stock,  —  or  such  stocks  and  bonds  and 
mortgages  to  the  same  amount,  on  improved,  productive,  and 
unincumbered  real  estate,  worth  double  the  amount  secured 
by  the  mortgage,  over  and  above  all  buildings  thereon,  and 
bearing  an  interest  of  six  per  cent,  per  annum,  —  the  comptroller 
was  required  to  deliver  to  such  individual  or  association,  an 
equal  amount  of  bank  notes  for  circulation,  duly  numbered, 
registered  and  countersigned  at  his  office."  /No  specific 
amount  was  required  from  individual  banker^  before  they 
commenced  operations,  nor  were  the  stockholders  in  the 
associations  liable  in  their  individual  capacity. j  The  result 
was,  that  in  the  abundant  supply  of  stocks  of  every  descrip- 
tion, banks  were  immediately  created  out  of  the  cheapest 
materials,  and  bank  notes  furnished  to  the  community  with  a 
generous  profusion.  The  extraordinary  expansion  of  the  cur- 
rency produced  an  inflation  of  prices,  credits  were  pushed  to 
their  utmost  extension,  free  scope  was  given  to  the  wildest 
speculation,  and  the  Western  and  South- Western  States 
freely  furnished  their  bonds  to  aid  the  delusion.  But  thg 
cri8i8_cajrLeJwith  fearittl  Tesultsi  in  the  first  place  in  the  sbap* 
of  non-payment  of  interest,  secondly,  of  great  depreciation, 
and  finally,  repudiation  of  the  State  bonds,  and^the  con- 
sequent failures  of  the  banks  which  owned  them^But  these 
disasters  did  not  discourage  the  people  from  a  ^rsisteuce  in 


17 


the..?cheme  of  free  banking  —  on  the  contrary,  they  resolutely 
set  to  work  to  retrieve  their  disasters,  and~amended  the  law 
to  guard  against  their  recurrence.  This  was  done  by  exclud- 
ing all  stocks  but  those  of  the  State  and  the  United  States, 
and  restricting  the  bonds  and  mortgages  to  smaller  amounts 
and  a  reduced  per  centage  of  their  intrinsic  value.  Although 
the  system  has  been  materially  amended  by  legislative  enact- 
ments since  its  first  introduction,  and  is  now  regarded  with 
favor  by  prominent  financiers,  as  affording  ample  security  to 
bill-holders,  yet  even  on  this  point  a  question  may  be  raised. 
In  periods  of  prosperity,  there  is  no  doubt  of  the  value  of  the 
bank  notes  of  these  banks,  because  the  stocks  or  mortgages 
will  command  the  money  for  which  they  are  pledged;  but  let 
a  severe  pressure  occur,  followed  by  a  general  panic,  a  sudden 
contraction  of  the  currency,  and  the  withdrawal  of  all  floating 
capital,  and  these  free  banks  would  experience  some  difficulty 
in  converting  their  stocks  and  mortgages  into  the  requisite 
funds  to  carry  on  their  redemption.  Even  the  unavoidable 
official  delay  in  obtaining  the  possession  of  their  securities 
would  prove  the  ruin  of  some  of  the  banks,  and  the  failure  of 
even  one  of  them  might  prove  disaslrous  to  many.  But  even 
after  they  were  repossessed  of  their  securities,  there  would  not 
only  be  depreciation  in  their  stocks,  but  a  loss  of  time  in 
effecting  a  sale  of  their  mortgages.  Their  discounted  paper 
would  only  be  partially  available  at  a  ruinous  sacrifice,  and 
with  many  of  the  banks  there  could  be  no  alternative  but 
suspension.  If  such  would  be  the  probable  fate  of  well  con- 
ducted institutions,  which  held  none  but  the  best  of  business 
paper,  and  had  deposited  unquestionable  securities,  how  much 
more  fatal  would  the  crisis  prove  to  those  who  had  deposited 
more  unsaleable  securities,  or  held  more  questionable  dis- 
counted paper.  "Free  banking"  is  a  popular  scheme  when 
contrasted  with  that  of  "chartered  monopolies."  The  privi- 
leges are  open  to  all  who  choose  to  avail  themselves  of  them, 
and  no  matter  what  the  reputation  of  the  individual  may  be 
or  the  character  of  the  association,  if  the  former  can  furnish 
$50,000,  or  the  latter  $100,000  in  State  stocks  and  mortgages, 
each  can  establish  a  bank  and  enjoy  all  the  privileges  that 
acknowledged  wealth,  high  reputation,  or  perfect  integrity  can 


4 


\. 


n.. 


'<. 


18 

command.  The  individual  may  be  a  stranger  from  a  distant 
region,  without  the  slightest  interest  in  the  community  where 
his  bank  is  located,  yet  with  the  requisite  securities  he  can 
demand  of  the  comptroller  or  superintendent  the  bank  notes 
therefor,  and  commence  his  financial  operations  without  any 
hindrance.  The  bank  itself  may  be  located  in  some  remote 
point,  out  of  the  range  of  ordinary  travel,  and  its  manager  a 
resident  of  some  commercial  city,  devoting  his  energies  to  the 
business  of  circulating  his  notes,  and  supplanting  the  issues 
of  more  substantial  banks,  who  are  transacting  a  legitimate 
business.  A  merely  nominal  amount  of  discounts  and  de- 
posits is  returned  in  technical  compliance  with  the  law ;  and 
in  the  place  where  the  bank  is  located,  some  adroit  agent 
represents  president,  directors,  and  cashier,  by  virtue  of  a 
power  of  attorney.  No  facilities  are  rendered  to  the  trading 
community,  nor  are  the  public  in  any  way  benefitted  by  the 
banks,  but  on  the  contrary  are  subjected  to  the  discount,  at 
which  the  bills  are  redeemed  by  the  owner  in  the  place  of  his 
residence ;  this  discount  being  less  than  the  cost  of  obtaining 
the  specie  from  the  place  where  the  bank  is  nominally  located. 
By  adroit  management,  a  considerable  amount  of  brokerage  * 
may  be  made  on  the  redemption  of  these  bills,  which  arc 
again  put  into  circulation  at  some  distant  point,  and  again 
redeemed  so  long  as  money  is  abundant.  Aided  by  similar 
establishments  in  Indiana,  Illinois,  and  Missouri,  the  combined 
forces  may  derive  a  large  emolument  from  this  business  of 
circulation  and  redemption,  levying  a  discount  on  the  com- 
munity until  a  protracted  pressure  occurs,  the  currency  is 
driven  home  for  the  coin,  and  the  whole  concern  suspends 
payment,  and  the  community  are  compelled  to  await  the  sale 
of  the  securities  for  their  partial  reimbursement  out  of  the 
scanty  materials  which  the  depreciated  value  of  the  stocks  and 
mortgages  may  ultimately  produce.  To  form  some  adequate 
conception  of  what  this  might  amount  to,  it  is  only  neces- 
sary to  refer  to  the  reports  of  the  proceeds  of  the  St.  Lawrence 
Bank,  whose  securities  for  $81,227  sold  for  $27,232 ;  of  the 
New  York  Banking  Company's  securities  for  $26,000,  sold 
for  $4370 ;  of  the  Erie  County  Bank,  whose  mortgages  for 
$15,000  on  paoperty  valued  at  $31,500  exclusive  of  buildings, 


19 

sold  for  $3000 ;  and  of  the  State  Bank  of  New  York,  whose 
Illinois  State  stock  for  $5000,  produced  only  $812.50 ;  all  in 
the  State  of  New  York,  and  all  under  the  general  banking 
law  of  that  flourishing  State,  since  1838. 

More  recent  laws  have  imposed  additional  restraints,  and 
requtredtfie  individual  banlcer  to  transact  the  business  of  the 
bank,  at  the  place  where  it  is  located,  and  superadded  his  per- 
sonal security  for  the  payment  of  the  bills  which  he  issues. 
But  laws  of  this  sort  are  but  cobwebs  in  the  hands  of  design- 
ing men,  easily  broken  through  and  derided. 

What  may  be  done  by  an  individual  banker,  may  be  ac- 
complished on  a  larger  scale  by  an  association,  which,  with 
larger  means,  commands  a  more  extended  influence.  By 
receiving  individual  deposits,  issuing  certified  checks,  drawing 
time  bills,  and  offering  certificates  of  special  deposit,  and  vari- 
ous other  artifices,  they  may  contrive  to  accumulate  an  opera- 
tive capital,  larger  than  their  own  nominal  amount.  For  this 
there  is  no  deposited  security,  and  the  larger  the  sum,  the 
stronger  the  inducement  to  play  a  bold  game  and  entrap  the 
unwary.  The  stockholders  may  reside  in  distant  States,  hav- 
ing no  sympathy  with  the  community,  who  are  the  victims  of 
their  cupidity;  and  when  their  liabilities  have  reached  the 
highest  attainable  point,  suddenly  suspend  payment,  buy  up 
their  own  bills  at  an  enormous  discount,  for  a  short  period,  or 
leave  them  to  be  redeemed  by  the  comptroller,  or  superinten- 
dent, out  of  the  proceeds  of  the  securities  deposited,  having 
previously  disposed  of  the  stock  to  parties  who  are  not  within 
the  reach  of  the  law.  Such  operations  have  been  successfully 
accomplished,  and  will  continue  to  be  practised,  as  long  as 
knaves  exist  in  the  world,  or  dupes  who  are  willing  to  trust 
them.  But  there  is  another  serious  objection  to  this  law, 
which  is,  that  it  entrusts  to  a  single  individual  a  despotic 
power,  more  arbitrary  than  that  which  the  monetary  autocrat 
of  the  late  United  States  Bank  was  accused  of  exercising  by 
his  adversaries.  The  superintendent  is  the  sole  judge  of  the 
securities  of  the  banks,  and  can  withhold  or  dispense  the  bank 
notes,  as  partiality,  caprice,  or  prejudice  may  dictate.  Bribery 
may  corrupt,  or  political  animosity  may  sway  his  action,  and 
his  independent  will  can  build  up  or  destroy  the  banks,  by 


i! 


20 


favoritism  or  coercion.  Appointed  by  the  executive,  for  a 
term  of  years,  he  is  not  responsible  to  the  people,  but  can  ex- 
ercise an  inquisitorial  and  executive  control  over  all  the  free 
banks  in  the  State ;  being  the  sole  arbiter  and  appraiser  of  the 
value  of  the  securities  deposited  for  the  bank  notes,  with 
power  to  coerce  and  withhold  from  one  party,  while  he  freely 
dispenses  and  repletes  another,  with  whom  he  may  be  in  alli- 
ance. In  a  period  of  high  political  excitement,  even  if  his 
integrity  could  not  be  assailed,  his  partisan  feelings  would  ex- 
ercise a  sway ;  and  we  have  sufficient  evidence  of  this,  in  the 
embittered  struggle  between  the  United  States  Bank  and  the 
national  executive,  which  terminated  in  the  overthrow  of  that 
powerful  institution. 

Such  is  a  brief  synopsis  of  the  three  systems  of  banking,  in 
operation  in  the  different  States,  but  generally  modified  from 
the  outline  thus  presented,  to  suit  the  crude  notions  of  experi- 
mental legislators,  or  the  ever  varying  expressions  of  public 
opinion.  The  States  are  independent  sovereignties,  and  have 
the  undoubted  right  to  enact  any  bank  laws  that  may  suit  the 
people;  to  issue  "bogus"  paper  for  currency,  and  to  pass  it 
among  themselves  for  money.  But  they  cannot  expect  to  pass 
beyond  their  own  boundary,  and  impose  upon  other  States 
that  which  has  no  intrinsic  value,  without  censure. 

"When  we  take  into  consideration  the  different  circumstan- 
ces under  which  the  banks  in  the  various  sections  of  our  coun- 
try have  been  established,  we  are  surprised  at  the  degree  of 
harmony  of  action  which  exists,  where  such  rival  interests  are 
so  constantly  at  work.  Amid  communities  so  diversified  in 
their  interests  and  pursuits,  so  remotely  separated  in  their 
principal  commercial  and  agricultural  marts,  the  bank  direc- 
tors of  such  widely  diftering  minds  have  generally  adhered  to 
the  first  principles  of  banking  with  wonderful  fidelity,  and 
promoted  the  interests  of  those  in  whose  midst  they  have 
acted.  Extraordinary  emergencies  have  sometimes  led  them 
into  errors  from  excessive  confidence,  but  the  object  has 
always  been  to  impart  vitality  to  trade,  and  assist  the  enter- 
prising. Instances,  however,  are  not  wanting,  where  bank 
charters  have  been  perverted  into  instruments  of  chicanery 
and  fraud,  and  whole  communities  have  been  made  the  vic- 


21 


tims  of  unprincipled  money  brokers.  Banks  have  been  estab- 
lished in  small  towns,  remote  from  the  channels  of  trade  or 
travel,  whose  emissions  of  currency  have  been  scattered  broad- 
cast through  the  land,  and  whose  brief  existence  has  been 
followed  by  the  anathemas  of  every  honest  man  whom  they 
have  despoiled.  This  system  of  plunder  is  atrocious  enough 
in  its  direct  effects,  but  when  its  indirect  results  are  taken  into 
account,  the  injury  it  produces  on  the  reputation  and  credit 
of  the  solvent  and  substantial  institutions,  it  ought  to  be 
reprobated  and  denounced  by  every  individual  who  holds  a 
bank  note,  or  has  occasion  to  use  one.  The  sources  of  such 
evils  are  our  legislative  bodies,  who,  either  from  importunity 
or  misrepresentation,  are  induced  to  grant  these  charters  to 
irresponsible  parties,  or  else  do  not  confine  them  to  such  places 
as  actually  require  bank  capital  for  the  local  trade  of  the 
neighborhood  where  they  are  established.  If  charters  were-^ 
never  granted  but  to  individuals  of  known  property,  who  were  \ 
required  to  hold  their  stock  for  the  first  year,  after  the  estab"/ 
lishment  of  the  bank,  and  the  further  requisition,  that  the  di- 
rectors should  all  reside  in  the  county  or  district  where  the 
bank  was  located,  and  that  its  managing  officer,  whether  presi- 
dent or  cashier,  should  be  in  the  banking-room,  instead  of 
Wall  street,  one  great  evil  would  be  remedied,  and  we  should 
have  more  confidence  in  the  currency  of  the  smaller  banks, 
who  now  enjoy  more  than  their  share  of  the  circulating  medium 
of  the  country. 

The  multiplicity  of  small  banks  is  a  great  and  increasing 
evil.  There  are  in  the  United  States  more  than  one  thousand 
banks  of  circulation.  They  have,  on  the  average,  five  direc- 
tors each,  and,  consequently,  there  are  five  thousand  individu- 
als of  different  minds  and  pursuits,  to  control  the  management 
of  nearly  $275,000,000  of  banking  capital,  in  the  various  parts 
of  the  country,  and  thereby  protect  their  own  interests,  as  well 
as  those  of  their  friends,  who  look  to  them  for  aid.  It  is  im- 
possible to  suppose  that  in  such  a  diversified  management, 
there  should  not  be  a  large  share  of  selfishness,  favoritism, 
rivalry  and  contention;  and  it  is  a  matter  of  surprise  that 
more  discordant  views  should  not  prevail,  rather  than  that 
there  should  be  so  much  harmony  of  purpose,  and  unity  of 


.4 

.r.- 


til 


1 1 


action.  It  would  be  natural  to  suppose,  that  mere  local  inter- 
ests would  occasion  constant  turmoil,  and,  above  all,  that 
sectional  jealousies  would  create  as  much  clashing  in  the 
financial  world,  as  they  do  in  political  circles.  But  it  is  not 
so;  for  the  rate  of  exchange  regulates  the  movements  of  the 
banks  in  the  different  sections  of  the  country,  and  compels 
them  all  to  keep  near  the  standard  value  of  gold,  or  be  dis- 
credited in  their  circulation. 

It  is  maintained,  however,  that  it  is  not  only  equitable,  but 
indispensable,  that  there  should  be  small  banks  in  the  country 
towns,  as  well  as  large  ones  in  the  cities,  to  supply  the  wants 
of  the  small  traders,  as  well  as  the  wealthy  merchants  or  man* 
ufacturers,  and  that  all  have  equal  rights.  This  may  be  ad- 
mitted, but  as  it  can  be  shown  that  the  small  banks  enjoy 
greater  advantages  in  the  extent  of  their  circulation,  it  is  but 
fair  that  they  should  be  classified  and  allowed  only  their  due 
share  of  the  circulation,  as  in  perilous  times  they  are  mainly 
dependent  on  the  larger  banks  for  succor.  In  Massachusetts, 
for  instance,  the  country  banks  have  in  circulation  seventy- 
two  per  cent,  of  their  capital,  while  the  city  banks  have  only 
thirty-four  per  cent.,  and  as  the  circulation  constitutes  a  large 
share  of  the  profits  of  banking,  it  is  evident  that  the  small 
banks  enjoy  the  greatest  advantages.  In  the  important  mat- 
ter of  representation,  we  classify  our  smaller  towns  into  dis- 
tricts, and  allow  them  only  their  proportion  in  our  legislative 
assemblies;  why  should  not  a  corresponding  apportionment 
be  adopted  in  the  distribution  of  bank  charters,  so  intimately 
affecting  the  interests  and  prosperity  of  the  whole  community? 

It  is  a  mistaken  idea,  that  banks  create  money,  or  make  it 
more  abundant;  their  issues  are  only  substitutes  for  money, 
and  are  of  great  convenience  in  the  daily  transactions  of  ad- 
justing accounts,  and  furnishing  a  convenient  medium  of 
transmission  from  place  to  place.  The  notes  issued  by  them, 
which  constitute  our  currency,  are  only  the  evidences  of  an 
equivalent  amount  deposited  with  them,  which  they  promise 
to  pay  the  bearer  thereof  on  demand,  in  coin,  and  the  value  of 
these  notes  depends  upon  the  degree  of  confidence  to  which 
their  bank  management  proves  itself  to  be  entitled.  If  the 
bank  has  a  real  capital,  the  paper  is  equivalent  to  specie,  but 


23 


if  the  deposits  are  only  the  notes  of  the  stockholders,  the  bank 
notes  are  worth  no  more  than  the  mutually  endorsed  paper  of 
these  same  stockholders,  in  their  individual  capacity,  deprived 
of  the  attractive  form  of  bank-note  engraving.  An  act  of 
incorporation  stamps  them  with  no  additional  intrinsic  value, 
although  their  specious  appearance  excites  less  scrutiny  and 
distrust.  The  multiplicity  of  banks,  therefore,  does  not  indi- 
cate the  increased  wealth  of  a  community ;  it  merely  collects 
that  wealth,  be  it  more  or  less,  together,  and  substitutes  its 
own  notes  for  that  which  it  holds  Dn  deposit,  adding  to  the 
amount  such  further  sum  as  the  public  at  large  may  choose  to 
entrust  them  with,  or  which  the  law,  in  addition  thereto,  may 
authorixe  them  to  issue.  When  a  bank  has  once  firmly  estab- 
lished its  reputation,  its  circulation  gradually  becomes  of  a 
permanent  character,  and  is  not  unfrequently  hoarded  up  in 
lieu  of  coin,  or  scattered  in  distant  places,  thereby  augmenting 
the  resources  of  the  bank,  by  exempting  it  from  the  immedi- 
ate hazard  of  daily  calls  for  redemption.  It  is  one  of  the 
principal  sources  of  profit  to  the  bank,  and,  to  effect  such  a 
state  of  things,  the  smaller  banks  use  their  utmost  efforts. 
Hence  we  find  them  discounting  small  sums  to  individuals, 
upon  the  condition  that  the  bills  shall  be  circulated  in  remote 
places,  and  thereby  scattering  them  widely.  An  examination 
of  the  list  of  more  than  five  hundred  banks,  which  have  failed 
in  the  United  States,  will  show  that  they  were  principally  of 
small  capitals,  nearly  one  third  of  which  were  in  New  York, 
sixty  in  Pennsylvania,  and  fifty  in  Ohio ;  and  besides  the  injury 
and  loss  which  they  temporarily  occasioned,  their  bills  are  now 
the  convenient  materials  of  counterfeiters,  to  alter  into  denom- 
inations of  genuine  and  current  bank  notes  at  the  present  day, 
and  thus  infiict  a  serious  loss  upon  the  laborers  and  traders  in 
the  country,  who  are  generally  unable  to  detect  the  fraud, 
until  it  is  too  late  to  escape  the  loss.  The  notes  of  these 
small  banks  are  generally  under  the  denomination  of  five  dol- 
lars, attractive  in  appearance,  and  rich  in  embellishments. 
Sagaciously  scattered  among  the  population  of  our  Western 
States,  who  are  accustomed  to  the  use  of  a  defaced  and  muti- 
lated currency,  they  are  readily  adopted  into  the  circulation, 
until  the  distribution  is  so  general,  that  no  inquiry  is  ever 


^ 


24 


■  \ 


made  as  to  their  character.  In  the  mass  of  paper  thus  de- 
signedly set  afloat,  there  is  an  admixture  of  bank  paper  of 
very  questionable  solvency,  and  when  the  financial  operator 
has  exhausted  his  stock,  the  bank  suddenly  fails,  with  one  or 
two  hundred  thousand  dollars  in  the  pockets  of  the  people, 
who,  instead  of  travelling  a  thousand  miles  to  seek  redress, 
quietly  sell  the  trash  at  fifty  per  cent,  discount,  and  thus  allow 
the  swindler  to  be  enriched,  without  any  attempt  to  bring  him 
to  justice. 

Instances  have  occurred,  in  which  bank  bills  have  been  put 
into  circulation,  before  the  bank  itself  had  either  a  banking 
house,  books  of  account,  or  even  capital  to  commence  with. 
Within  a  short  time,  a  bank  in  Kentucky  issued  a  considera- 
ble amount  of  its  bills,  which  were  returned  for  redemption, 
from  Indiana,  before  its  cashier  had  a  place  of  business,  or  the 
bank  a  known  locality,  and  the  party  who  presented  the  bills 
;  for  redemption  was  actually  arrested  by  some  of  the  direc- 
tors, for  having  in  his  possession  notes  alleged  to  have  been 
fraudulently  obtained,  but  which  were  actually  issued  by  the 
president  of  the  bank,  in  his  excessive  haste  to  discount  paper 
and  get  his  notes  into  circulation. 

More  recently,  the  pork  dealers  in  Indiana  have  sustained 
heavy  losses  by  the  failure  of  the  two  Connecticut  banks, 
whose  bills  for  two  hundred  thousand  dollars  were  pro- 
fusely scattered  throughout  that  portion  of  the  western  coun- 
try. Such  transactions  as  these  naturally  produce  a  vast  deal 
of  distrust,  even  in  regard  to  solvent  banks,  and  unless  some 
energetic  measures  are  adopted  to  crush  such  nefarious  finan- 
ciering, the  community  must  continue  to  be  swindled  by  these 
unprincipled  adventurers.  For  want  of  a  better  law,  it  would 
be  wise  to  prohibit  in  every  State,  the  circulation  of  the  bills 
of  any  bank  in  another  State,  whose  capital  was  less  than 
^200,000,  thereby  implying  that  it  was  managed  by  a  board 
of  directors,  who  felt  some  responsibility  for  its  circulation, 
and  held  the  means  of  its  redemption.  But  how  small  a  por- 
tion of  the  trading  community  know  the  standing  of  the 
thousand  banks,  whose  bills  are  daily  taken  in  the  ordinary 
routine  of  business,  in  small  towns  and  country  villages.  In 
these  bustling  days   of  railroad   conveyance,  a  person  may 


25 


travel  from  Maine  to  Louisiana,  and  scatter  broadcast,  through- 
out the  land,  the  bills  of  banks,  which  he  would  be  unwilling 
to  receive  on  his  homeward  route,  and  with  ordinary  sagacity, 
or  assurance,  do  it  with  impunity,  and  but  for  the  intervention 
of  money-brokers,  these  same  bills  might  be  a  circulating 
medium  in  some  remote  places,  for  a  long  period  after  they 
had  fallen  into  disrepute. 

It  may  be  asked,  what  is  the  remedy  for  these  evils  ?     Some 
will  maintain,  that  if  the  two  banks,  which  recently  failed  in 
Connecticut,  had  been  instituted  under  the  free  banking  sys- 
tem of  New  York,  there  could  not  have  been  the  heavy  loss 
now  sustained.     Neither  would  it  have  occurred  under  the 
restrictions  of  the  specie  basis,  if  these  had  been  enforced.     As 
it  is  useless  to  enact  laws  against  burglary,  if  our  police  are 
not  on  the  alert  to  detect  the  criminals  and  bring   them  to 
justice,  so  also  it  is  in  vain,  that  commissioners  are  appointed 
to  inspect  the  condition  of  banks,  if  they  perform  their  duties 
imperfectly,  and  thus  lull  the  community  into  fancied  security. 
In  the  instances  referred  to,  a  single  individual  has,  through 
the    operations    of    these    two    banks,    thrown    the    whole 
country  into  alarm,  and  embarrassed  the  circulation  of  both 
Eastern  and  Western  notes,  by  the  issues  of  worthless  bank 
paper,  and  the  banks  in  Connecticut  have  no  reason  to  com- 
plain if  their  notes  are  discredited,  when  such  palpable  frauds 
can  be   perpetrated  under  charters  granted  by  their  Legisla- 
ture, and  of  which  there  must  have  been  an  infringement, 
from  the  very  commencement  of  these  banking  operations.     It 
is  only  to  be  regretted  that  the  entire  loss  did  not  fall  upon  the 
residents  of  the  State,  instead  of  being  distributed  throughout 
the  Western  country.     We  constitute,  by  our  acts  of  legisla- 
tion, bank  notes  as  the  currency  of  the  country,  and  although 
they  are  not  strictly  a  legal  tender,  yet  the  trader,  mechanic  or 
farmer,  who  should  refuse  to  receive  them  in  payment,  could 
have  but  little  to  do  with  the  community.     Such  being  the 
case,  the  government  which  has  authorized  the  currency,   is 
bound  in  good  faith  to  require  that  it  maintains  its  nominal 
value.     It  is  made  the  representative  of  coin,  and   any   de- 
viation from  this  condition  ought  to  be  remedied  by  suitable 
remuneration  to  the  sufferers,  or  at  any   rate  corresponding 


■  \i 


TV 

I 


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26 


penalties  ought  to  be  enforced.  But  where  is  there  an  in- 
stance that  directors  of  fraudulent  or  irresponsible  banks 
have  been  made  amenable  to  the  violated  laws  of  the 
State  ? 

There  is  another  prolific  source  of  many  vexatious  losses  on 
bank  notes  in  the  Western  States,  arising  from  the  intolerable 
usage   of  circulating  defaced   and   mutilated   bills.     In   the 
Eastern  States,  a  torn  bill  is  never  paid  out  of  the  bank  which 
originally  issued  it  after  it  has  been  once  returned,  and  hence 
there  is  at  least  a  clean  currency ;  but  in  the  West,  a  really 
clean  bill  is  rarely  met  with.     This  is  miserable  economy  on 
the   part   of  the   banks  themselves,  in  the  first  place ;   and 
secondly,  it  materially  aids  the  operations  of  counterfeiters, 
who,  by  soiling  their  own  productions,  manage  to  obliterate 
the   defective   part  of  their  work,  and   thus   elude   a  ready 
detection.     It  is  not  unusual  to  see  parts  of  two  bills,  one  half 
genuine,  the  other  counterfeit,  pasted  together,  and  entering 
into  the  circulation  without  rejection.     When  such  indiffer- 
ence exists,  the  only  wonder  is  that  more  extensive  frauds  are 
not   constantly  perpetrated.     If  the   banks  would  refuse   to 
receive  such  trash   on  deposit,  it  might  sooner  find  its  way 
home,  and  induce  the   banks  which  issued  it,  to  favor  the 
community  with  something  better  than  filthy  rags,  and  which 
are  positively  unsafe  to  handle.     Indeed,  there  is  no  reason 
why  a  bank  should  be  permitted  to  pay  out  mutilated  cur- 
rency, any  more  than  clipped  coin,  or  light  gold ;  and  if  the 
best  policy  was  adopted,  banks  would  never  pay  out  the  same 
bills  after  one  round  of  evident  service,  but  issue  new  paper. 
The  Bank  of  England  never  pays  out  its  notes  a  second  time, 
even    though   the    bills   have   never  passed   out    from   their 
enclosure,  and  the  engraving  of  these  notes  is   so   severely 
simple,   that   counterfeits   are   rarely   seen   and    immediately 
detected.     Their  lowest  denomination  is  five  pounds,  and  we 
might  advantageously  copy  them  in  this  country  by  restricting 
the  issues  of  our  own  banks  to  the  lowest  denomination  of 
five  dollars,  thereby  distributing  throughout  the  community  a 
larger  supply  of  silver  and  gold,  and  defeating  the  counter- 
feiter in  his  frequently  successful  attempts  to  alter  our  small 
notes  into  those  of  a  larger  denomination. 


27 

The  Legislatures  in  most  of  our  States  are  more  prone  to 
excessive  legislation  in  regard  to  banks,  than  in  reference  to 
any  other  description  of  chartered  corporations.  Many  of 
these  restrictions  are  unwise,  some  of  them  unjust,  and  in  one 
State,  at  least,  manifestly  contrary  to  the  Constitution  of  the 
State.  We  refer  more  particularly  to  the  onerous  tax  law  of 
Ohio,  which  is  attempted  to  be  enforced  by  what  is  termed 
the  "  Crowbar  Law,"  and  is  justified  by  judges  who  have 
the  effrontery  to  reverse  the  decisions  of  the  Supreme  Court 
at  Washington,  and  promulgate  their  own  crude  notions 
as  the  true  construction  of  the  law  of  contracts.  But 
even  in  Massachusetts  there  is  a  singular  anomaly  in  the 
laws  relating  to  banks.  A  tax  of  one  per  cent,  is  laid  on 
the  capital  of  banks  under  special  charters,  while  those,  which 
may  hereafter  adopt  the  free  bank  system,  are  exempted  from 
it.  In  other  words,  the  banks  which  are  established  upon  a 
specie  basis  are  compelled  to  pay  about  two  per  cent,  on  the 
amount  of  their  circulation,  while  those  whose  issues  are 
conditioned  upon  State  stocks  are  wholly  exempt  from  the 
tax.  Again,  banks  of  $100,000  capital  may  have  an  equal 
amount  of  circulation,  and  a  permanent  deposit  of  $100,000, 
and  yet  they  cannot  loan  one  dollar  of  the  latter,  after  their 
loan  of  discounts  has  reached  $200,000,  or  double  the  amount 
of  their  capital 

In  Louisiana,  also,  similar  restrictive  laws  prevent  the  banks 
in  New  Orleans  from  exercising  the  ordinary  functions  which 
rightfully  belong  to  them,  and  they  have  generally  on  hand 
double  the  amount  of  their  circulation  in  specie,  because  they 
cannot  increase  their  line  of  discounts  without  infringing  the 
law.  These,  however,  are  probably  the  sad  effects  of  the 
extraordinary  expansion  of  banking  capital  in  that  State  in 
1836  to  thirty-four  millions  of  dollars,  and  the  suspension  of 
all  their  banks  in  the  following  year,  preceding,  as  they  did, 
the  general  bankruptcy  of  that  memorable  period.  There  is 
not  a  commercial  city  in  the  United  States  that  more  needs 
a  liberal  banking  system  than  New  Orleans,  and  "  not  merely 
policy  and  expediency,  but  absolute  necessity  requires  a  change 
.  as  an  essential  auxiliary  to  her  prosperity." 

In  the  various  discussions  upon  banking  concerns,  that  of 


r 


28 

the  currency,  or  the   circulating   medium,  is   the   particular 
subject  which  most  materially  aflects  the  public,  and  upon 
which    most   of    the   legislative    debates    periodically   dilate. 
This  circulating  medium  purports  to  be  the  representative  of 
gold  and  silver  only,  and  its  equivalent  in  value,  and  although 
there  is  never  coin  enough  in  any  single  bank  to  redeem  at 
once  all  the  bills  which  have  been  issued ;  yet,  when  there  is 
convertible  paper  enough   held  for  the  amount  to  secure  its 
redemption  as  fast  as  it  can  be  wanted,  while  there  is  confi- 
dence, there  will  be  no  lack  of  coin,  even  though  the  apparent 
supply  is  not  one  fourth  part  of  the  amount  of  circulating 
notes.     If,  however,  we  abolish  the  specie  basis  of  bank  notes, 
and  substitute  that  of  State  bonds  as  security,  it  would  be 
nothing  more  than  government  paper,  which  may,  in  some 
sudden  emergency,  be  subject  to  depreciation.     In  a  period  of 
peace  and  prosperity,  we  may  ridicule  the  idea  of  United 
States  stocks  being  below  par,  but  it  is  impossible  to  foresee 
how  soon  we  may  be  embroiled  in  a  foreign  war,  or  how  soon 
the   English   holders   of  our   stocks   may  deem   it  for   their 
interest  to  send  back  our  two  hundred  and  fifty  millions  of 
bonds  and  stocks  for  sale  in  this  country.     And  no  system  of 
banking  which  does  not  in  the  first  instance  have  its  stock 
paid  up  in  specie,  the  convertible  value  of  which  is  retained  to 
support  the  system,  and  with  it  the  reputation  of  responsible 
directors,  is  entitled  to  the  public  confidence  and  support.     A 
bank  which  is  skilfully  conducted  needs  but  a  small  portion 
of  its  original  amount  of  specie  to  be  kept  on  hand,  for  it 
can   always  command  it,  when  needed,  for  the  purpose  of 
redemption  as  fast  as  its  bills  are  presented.     It  thus  enlarges 
its  operative  capital,  and  by  the  act  of  the  government  which 
grants   it   the  privilege  of  supplying  currency,  renders  itself 
liable  to  such  restrictions  as  the  safety  of  the  community 
requires.     Past  experience  has  taught  us  what  those  restric- 
tions  ought  to  be,  and  whenever   any   departure   from   the 
principle    has    occurred,    inevitable    mischief    has    followed. 
Government  paper  is  not  necessarily  equivalent  to  gold  and 
silver,  and  ought  not  to  be  the  basis  of  bank  issues,  since  ia 
critical  periods  it  is  liable  to  depreciation.     The  country  has, 
in  past  times,  suffered  enough  from  this  cause,  and  we  have 


29 

no  apology  for  again  introducing  a  paper  system  when  we 
have  wealth  enough  in  the  country  to  supply  all  needful 
facilities  for  the  purposes  of  a  legitimate  and  wholesome 
trade,  as  well  as  the  wants  of  enterprise  and  improvement. 
But  in  these  days  of  "progress,"  the  history  of  the  past 
appears  to  be  wholly  disregarded,  and  systems  of  banking  are 
advocated  which  would  only  terminate  in  our  old  "  continental 
currency."  Can  any  rational  person  desire  such  a  state  of 
things? 

It  should  be  borne  in  mind,  that  successful  banking  is,  in 
itself,  a  science,  not  acquired  with  facility,  or  mere  observation, 
but  by  laborious  study  and  practical  application  to  its  details 
and  operations.  And  when  we  investigate  the  origin,  founda- 
tion and  career,  of  the  thousand  institutions  in  the  various 
towns  of  our  country,  we  shall  be  more  surprised  that  they 
are  so  well  conducted,  rather  than  at  the  departures  from 
banking  principles,  which  occasionally  are  developed.  It  would 
be  marvellous  indeed,  if  individuals  drawn  from  the  industrial 
pursuits  of  life,  the  professional  study,  the  counting-room,  the 
workshop,  and  the  farm,  should  intuitively  comprehend  the 
difficult  mysteries  and  perplexities  of  currency,  in  its  con- 
traction and  expansion,  and  of  exchange  in  its  constant 
fluctuations,  produced  by  silent  operations  in  distant  markets, 
and  imperceptibly  yet  inevitably  influencing  the  monetary 
condition  of  their  own  sphere  of  operation.  Few  individuals, 
engrossed  in  their  own  affairs,  can  have  leisure  for  these  topics, 
and  yet  without  this  knowledge  a  banking  institution  is  with- 
out chart  or  compass.  Even  in  our  commercial  cities,  sur- 
rounded as  the  banks  are  by  the  hourly  means  of  intelligence, 
how  many  there  are  who  heedlessly  follow  their  own  course  of 
policy,  unmindful  of  the  narrow  strait  to  which  they  hasten, 
until  by  their  own 'rashness  they  are  stranded.  The  causes 
which  vitally  af!'ect  their  condition  are  so  remote,  and  beyond 
the  reach  of  ordinary  observation,  that  their  very  suddenness 
requires  constant  vigilance  and  precaution.  Not  that  we 
would  encourage  timidity  —  far  from  it.  If  a  bank  or  indi- 
viduals fail,  we  should  investigate  the  causes  before  we  sus- 
pect others  of  weakness.  If  a  temporary  panic  seizes  a 
community,  a  bank  should  inspect  its  own  strength  and  re- 


r 


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I 


I 


80 

sources,  but  not  intrench  itself  within  impregnable  barriers  and 
lock  itself  up  in  its  own  vaults  of  complacent  self-reliance. 
It  is  wiser  to  aid  the  weak  and  encourage  the  timid,  when  the 
disturbing  cause  is  merely  local,  or  temporary.  There  are, 
however,  periods,  when  even  local  or  adventitious  circum- 
stances occasion  a  wide-spread  apprehension,  if  not  conster- 
nation;  trifling  indeed  in  themselves,  but  disclosing  a  general 
state  of  affairs  which  ought  not  to  exist ;  and  such  has 
recently  been  the  case.  A  single  bank,  in  our  commercial 
metropolis,  had  deviated  from  the  prudential  rules  of  banking, 
by  borrowing  a  large  sum  of  money,  payable  on  demand, 
which  it  had  imprudently  loaned  on  time.  The  result  is 
well  known  ;  it  became  embarrassed  by  a  sudden  demand 
from  the  creditor  bank,  and  was  compelled  to  solicit  aid  from 
other  sources.  This  led  to  the  disclosure,  that  most  of  the 
banks  were  overbanking,  or  discounting  more  freely  than  their 
means  would  justify,  and  a  salutary  warning  having  thus  been 
given,  the  undue  expansion  received  a  timely  check,  thereby 
averting  some  subsequent  crisis  in  the  monetary  affairs  of  the 
whole  country. 

All  banking  institutions  are  established  for  two  ostensible 
purposes :  first,  the  lucrative  employment  of  surplus  capital, 
and  secondly,  the  benefit  of  the  community  by  furnishing  it 
with  bank  facilities.  Under  judicious  management,  both 
these  objects  can  be  accomplished;  for  independently  of  the 
privilege  of  issuing  bills  for  a  larger  amount  than  the  capital 
stock,  the  banks  are  constantly  receiving  the  funds  of  their 
depositors,  whose  balances  constitute  a  steady  fund  for  loans 
to  those  who  may  occasionally  need  them.  When  the  supply 
thus  incidentally  collected  is  judiciously  distributed,  a  bank 
accomplishes  all  that  it  was  originally  instituted  for,  and  be- 
comes of  great  public  usefulness.  But  when  it  is  created  by 
the  joint  stock  notes  of  its  proprietors,  for  the  purpose  of  issu- 
ing bank  notes  and  distributing  them  among  its  proprietors  for 
the  purposes  of  speculation,  or  the  thousand  various  schemes 
to  which  funds  thus  created  have  been  applied,  such  a  bank  is 
an  incubus  upon  a  community,  and  sooner  or  later  will  share 
the  fate  of  its  proprietors,  and  terminate  like  them  in  dis- 
aster.    If  so  few  prudent  merchants  escape  bankruptcy,  as  the 


*»     wt* 


81 


past  history  of  our  country  unfortunately  teaches  us,  how  can 
banks,  managed  by  reckless  and  inexperienced  directors,  escape 
similar  misfortune,  more  especially  if  there  is  no  real  capital 
at  the  foundation,  to  make  good  the  losses  which  improvi- 
dence or  fraud  may  occasion  ?  When  money  is  abundant,  it 
is  easy  for  any  set  of  men  in  tolerably  fair  credit  to  inter- 
change their  endorsements,  and  thereby  raise  the  funds  neces- 
sary to  constitute  a  capital  for  a  bank.  When  the  notes  on 
which  they  obtained  the  money  become  due,  they  are  partially 
discounted  at  the  bank,  which  they  thereby  created  ;  but  such 
an  operation  does  not  add  any  real  capital  to  the  community, 
although  it  may  furnish  more  circulation,  to  the  exclusion, 
perhaps,  of  more  substantial  currency.  If  a  pressure  comes 
on,  protracted  and  severe  enough  to  test  the  strength  of  the 
trading  community,  the  funds  of  such  a  bank  are  reduced 
down  to  their  primitive  basis,  viz.,  the  promissory  notes  of  the 
proprietors ;  and  if  a  material  depreciation  of  credit  or  prop- 
erty has  meanwhile  occurred,  greater  than  the  amount  of 
their  earnings,  such  a  bank  must  inevitably  go  into  liquidation, 
unless  substantial  men  have  been  induced  to  buy  its  stock, 
for  the  purpose  of  investment.  Has  not  this  been  frequently 
the  case  in  past  years,  and  are  there  not  now  many  banks  in 
the  country  which  have  really  no  substantial  specie  basis  ?  It 
is  therefore  the  obvious  duty  of  bank  commissioners,  not  only 
to  investigate  the  nominal  means  and  liabilities  of  the  banks, 
but  also  the  responsibilities  and  indebtedness  of  the  stock- 
holders of  every  institution,  and  especially  the  state  of  the 
balances  in  the  individual  ledger.  Without  these  critical 
examinations,  all  legal  restrictions  are  evaded  until  a  sus- 
pension takes  place,  and  the  paper  wealth  is  scattered  to  the 
winds. 

Any  one  conversant  with  the  mode  of  making  up  bank 
statements,  will  admit  that  very  little  importance  can  be  at- 
tached to  these  periodical  returns,  as  indicative  of  the  real 
condition  of  the  banks  before  or  after  the  week  on  which  they 
are  prepared.  In  some  of  the  States,  it  is  true,  that  no  stated 
day  is  appointed  for  which  preparation  can  be  made,  and  the 
statement  must  be  made  from  the  books  of  the  condition  of 
the  banks  at  a  date  which  has  elapsed.     But  it  always  has 


32 


happened  that  some  near  friend  of  the  executive  intimates  the 
time  when  it  may  be  required,  and  the  suggestion  is  circulated 
with  astonishing  rapidity.     But  in  most  of  the  States  the  re- 
turn  days  are  duly  notified,  and  the  banks  have  ample  time  to 
set  things  in  order,  and  satisfy  the  community  of  the  soundness 
of  their  condition.     Discounting  ceases,  accommodation  loans 
are  called  in,  gold  obtained  on  special  deposit,  circulation  re- 
duced, balances  in  the  Eastern  cities  suddenly  enlarged,  and 
various   other  devices  resorted  to  which  make  a  formidable 
display  on  paper,  and  for  the  time  being  are  true  returns,  as  the 
banks  will  verify.     But  if  a  statement  was  required,  shewing 
their  condition  a  week  or  a  month  subsequent  to  this  periodical 
return,  quite  a  different  aspect  of  affairs  might  be  disclosed. 
Take,  for  instance,  the  banks  in  Ohio,  Kentucky  and  Indiana, 
all  great  producing  States,  with  common  interests  at  stake. 
The  banks  of  these  States  have  extensive  operations  with  each 
other,  and  as  the  returns  are  required  at  different  periods,  the 
same  stock  of  gold  may  be  used  in  the  returns  of  each  State 
successively  by  the  temporary  loan  of  it  from  one  State  to  the 
other,  and  all  be  done  in  strict  compliance  with  the  law ;  and 
even  the  express  offices  between  New  York  and  these  States 
might  furnish  some  curious  data  as  to  the  transit  of  gold  to 
and  from  these  points,  and  enable  us  to  form  some  estimate  of 
the  value  of  these  reports.     The  truth  is,  that  our  Legislatures 
may  exhaust  their  ingenuity  in  making  regulations  for  banks, 
but  all  their  checks  and  restrictions  and  examinations  will  be 
of  no  avail,  against  the  subtle  contrivances  of  expert  financiers, 
if  the  banks  choose  to   resort  to   them.     These  suggestions, 
however,  are  offered,  not  with  the  view  of  implying  that  such 
arrangements  are  actually  made  by  the  banks  of  these  or  any 
other  States  similarly  situated,  but  merely  to  shew  that  there  is 
a  want  of  congruity  and  general  uniformity  of  the  banking 
laws  of  the  different  States,  which  will  allow  much  deception 
to  be  practised  by  such  banks  as  may  not  be  able  to  bear  the 
scrutiny  which  the  laws  intended.     And  there  is  but  one  mode 
in  which   the   true   condition  of  the  banks   throughout   the 
country  can  ever  be  fairly  ascertained. 

If  our  banking  institutions  would  select  out  of  their  own 
number  a  delegation  of  intelligent  directors,  who  would  peri- 


33 


odically  and  successively  assemble  at  Boston,  New  York, 
Cincinnati  and  St.  Louis,  and  interchange  opinions  with  each 
other  on  financial  subjects,  it  would  probably  result  in  some 
established  system  of  management  which  would  conduce  to 
the  general  safety  of  the  banks  and  the  benefit  of  the  trading 
community.  Conventions  of  this  kind  have  been  called  at 
various  periods  of  commercial  distress,  and  have  always  re- 
sulted in  a  concert  of  action  and  partial  relief;  but  periods  of 
prosperity  are  often  as  dangerous  as  those  of  pressure  and 
panic,  because,  hitherto,  the  former  have  always  been  suc- 
ceeded by  the  latter.  In  all  the  other  concerns  of  life,  religion, 
morals,  politics,  science,  agriculture,  manufactures,  the  learned 
professions,  colonization,  abolition,  and  even  woman's  rights, 
there  are  annual  conventions  in  every  part  of  the  country,  and 
for  many  of  these  objects  such  assemblages  are  productive  of 
permanent  good ;  but  in  monetary  affairs,  which  affect  the 
interests  of  every  individual  in  the  community,  no  concert  of 
action  is  proposed,  but  each  State  pursues  its  own  sectional  or 
local  policy,  without  any  regard  to  the  action  of  the  others. 
Even  in  the  separate  States,  within  their  own  borders,  there  is 
such  a  contrariety  of  opinions  and  action,  that  needless  em- 
barrassments are  occasioned  by  caprice  and  independent 
action  of  banks  in  the  same  city.  How  much  serious  mischief 
might  have  been  prevented,  if  the  several  banks  in  the  city  of 
New  York  alone  had  held  a  consultation  together,  and  ascer- 
tained their  actual  condition  this  season,  instead  of  leaving 
it  to  a  single  bank  to  lead  to  an  exposure  of  the  dangerous 
expansion  which  they  had  reached.  Although  State  Conven- 
tions of  bank  directors  would  be  highly  beneficial,  yet  the 
main  object  would  not  be  attained  without  the  organization 
of  a  National  Convention,  delegated  by  the  State  Conventions. 
We  should  then  have  an  array  of  talent  and  experience  in 
financial  matters,  which  would  command  the  respect  of  every 
banking  institution  in  the  country.  A  standing  committee  of 
such  a  National  Convention  might  be  formed,  w^ho  should 
investigate  the  condition  of  every  bank  in  the  country,  the 
wants  of  the  districts  in  which  they  are  located,  the  aggregate 
amounts  of  capital  in  circulation,  coin  and  loans,  the  course 
of  exchange,  both  foreign  and  domestic,  the  annual  value  of 


I 


imports  and  exports,  the  surplus  and  deficiency  of  crops,  the 
influx  of  gold,  the    condition  and   prospects   of  the  foreign 
markets  for  our  agricultural  products,  and  the  practical  oper- 
ations  of  all  our  national  measures  of  finance.     Such  a  board, 
composed  of  individuals  of  talents,  experience  and  compre- 
hensive  minds,  would  be  of  inestimable  value  to  the  country 
at  large  ;  and  however  arduous  their  labors  might  be,  yet  the 
commercial  community  can  furnish  men  enough  who  would 
be  equal  to  the  task,  and  whose  opinions  would  be  adopted 
as  soon  as  they  were  promulgated.     Such  a  board  of  advisers 
would  preserve  a  greater  uniformity  in  our  foreign  exchanges 
than  could  be  effected  in  any  other  way,  for  their  opinions 
would  rest  upon  the  fundamental  laws  of  trade  —  those  of  de- 
mand and  supply. 

We  may  have  a  restrictive  system,  or  a  more  liberal  policy, 
but  those  inexorable  laws  of  demand  and  supply  will  affect 
the  rate  of  exchanges  both  at  home  and  abroad.     If  we  wiU 
import  the  fabrics  of  Great  Britain,  France  and  Germany,  we 
must  send  them  in  return  articles  of  our  own  growth  or  ac- 
quisition of  equivalent  value,  or  pay  for  the  balance  in  coin. 
We  may  defer  the  day  of  payment  by  the  temporary  expe- 
dients  of  bonds  and  stocks,  but  the  ultimate  adjustment  must 
be  made  by  the  produce  of  our  labor  or  in  gold.     In  like  man- 
ner, if  the  manufacturers  of  the  East  want  the  cotton  of  the 
South,  or  the  wool  of  the   Middle  States,  to  carry  on  their 
operations,  if  they  cannot  pay  for  them  with  an  equal  amount 
of  fabrics,  shoes,  furniture,  &c.,  the  balance  must  be  adjusted 
by  coin,  or  its  equivalent.     If  the  commercial  interest  requires 
the  produce  of  the  West  for  foreign   markets   to   a  larger 
amount  than  our  farmers  require  of  Iheir  foreign  merchandise, 
the  specie  must  be  provided  to  pay  the  difference.     Now  these 
periodical  balances  are  of  sure  occurrence  annually,  and  might 
easily  be  provided  for  so  far  as  the  domestic  trade  is  concerned, 
if  the  banks  acted  in  concert,  without  occasioning  those  un- 
necessary fluctuations  in  exchange,  or  that  transportation   of 
gold  so  needlessly  resorted  to,  which  creates  a  temporary  dis- 
turbance in  the  money  market.     It  is  true,  that  it  is  not  for 
the  interest  of  the  banks  in  our  commercial  cities  to  equalize 
our  domestic  exchanges,  as  no  inconsiderable  amount  of  their 


85 


profits  are  derived  from  the  discounts  and  premiums  which 
they  receive  from  their  customers,  but  their  circulation  would 
be  extended,  and  the  community  would  be  relieved  from  the 
heavy  tax  now  paid  for  exchange.  The  New  England  banks 
keep  their  money  at  par  by  the  Suffolk  Bank  system  in  Boston, 
previous  to  which  it  was  at  one  per  cent,  discount  there ;  and 
even  in  New  York  they  are  now  at  a  mere  nominal  discount. 
The  banks  in  the  great  valley  of  the  Ohio  might  in  like  man- 
ner keep  their  currency  nearly  at  par  by  using  the  large  bal- 
ances which  they  usually  have  in  New  York  for  the  redemption 
of  their  bills  which  may  reach  there,  and  thus  extend  their 
circulation  by  the  facility  with  which  they  could  be  converted 
into  bankable  funds.  The  rate  of  exchange  on  New  York  is 
rarely  above  half  per  cent.,  and  often  is  down  to  par,  while  the 
cost  of  transportation  in  less  than  two  days  is  only  two  dollars 
per  thousand  on  gold. 

The  disturbing  causes  which  agitate  our  monetary  concerns 
are  sufficiently  multifarious  and  perplexing  to  require  the 
watchful  supervision  of  the  most  talented  financiers.  To 
avert  impending  dangers  affecting  the  interests  of  the  whole 
country,  to  warn  the  imprudent,  to  counsel  the  weak,  en- 
courage the  timid,  and  remind  the  strong  of  their  obvious 
duty  in  times  of  peril ;  all  these  efforts  require  firmness  of 
purpose,  enlarged  views,  acknowledged  experience,  and  a  tact 
which  they  only  possess  who  have  borne  the  brunt  of  past  strug- 
gles, and  who  would  therefore  be  selected  as  leaders  of  known 
ability.  First,  in  frequency  perhaps,  and  certainly  in  actual 
importance,  is  the  disturbance  occasioned  by  our  vacillating 
national  legislation.  Under  successive  administrations,  change- 
able as  the  popular  will,  we  have  high  and  low  tariff's,  loans 
and  redemptions,  a  national  bank  and  a  sub-treasury,  all 
antagonistic  in  their  operations  upon  the  business  concerns  of 
the  country,  and  so  rapid  in  succession  that  none  but  the 
young  adventurer  can  accommodate  himself  to  their  ever- 
varying  phases.  The  mature  in  business  connections  are  up- 
rooted or  otherwise  destroyed  by  this  varying  policy,  and  from 
this  cause  alone  we  witness  more  mutations  in  business  con- 
cerns, than  are  produced  by  any  other  single  circumstance 
whatever. 


36 


C3^ 


1 1 


Another  cause  of  disturbance  in  monetary  affairs,  may  be 
traced  to  the  varying  state  of  our  affairs  with  foreign  nations, 
and  the  poetical  effervescence  incident  thereto.  The  war  with 
Mexico  has  placed  in  the  executive  chair  one  of  the  leaders  in 
that  conquest,  by  a  majority  almost  unparalleled  in  the  history 
of  our  country,  in  the  vain  belief,  as  it  is  to  be  hoped,  that  he 
would  encourage  fresh  aggression,  and  further  territorial  ag- 
grandizement ;  and  his  predecessor,  an  experienced  statesman 
of  profound  sagacity,  is  permitted  to  retire  to  the  shades  of 
private  life,  together  with  most  of  the  eminent  men  who  com- 
posed his  cabinet. 

A  third  disturbing  cause  is  the  periodical  changes  in  the 
English  market  for  our  great  staples  of  cotton  and  bread-stuffs, 
the  prices  of  which  afi'ect  our  exchanges  more  than  all  the 
other  causes  combined,  and,  consequently,  either  supply  or 
diminish  our  stock  of  gold,  to  such  an  extent  as  to  render 
money  abundant  or  scarce,  throughout  our  whole  country. 
Now  all  three  of  these  causes  are  generally  disregarded  by  the 
great  mass  of  the  trading  community,  until  they  feel  their 
pressure,  so  intent  is  each  individual  in  the  pursuit  of  his 
own  particular  branch  of  business ;  but  they  may  all  be  fore- 
seen by  a  sagacious  observer,  and  their  results  anticipated. 
If,  therefore,  men  of  experience  and  enlarged  comprehension, 
could  be  induced  to  accept  such  a  trust  as  has  been  imperfectly 
delineated,  and  in  due  time  forewarn  the  banking  institutions 
of  the  country  of  approaching  danger,  much  might  be  done  to 
prevent  the  disasters,  in  which  blind  speculation  is  so  frequent- 
ly involved.  Thus  the  violent  contractions  which  we  now 
occasionally  suffer  in  our  currency,  might  be  partially  miti- 
gated, and  a  more  alleviating  policy  be  advantageously  substi- 
tuted. By  the  weight  of  their  influence  we  might  have  an 
exchequer  system,  which  would  supersede  the  obnoxious  sub- 
treasury  scheme,  which  abstracts  so  much  of  our  coin  from 
the  banks,  depriving  them  of  the  means  of  discounting  and 
circulation,  but  yielding  no  benefit  to  the  government  while 
locked  up  in  its  vaults. 

It  may  be  objected,  that  this  arrangement  would  concen- 
trate a  monetary  power  in  the  hands  of  a  few  influential  indi- 
viduals, whose  sway  would  be  more  potential  than  the  arm  of 


87 

the  government  itself,  and  that  the  Jackson  and  Biddle  war- 
fare might  again  be  renewed.     But  it  must  be  borne  in  mind, 
that  the  plan  proposed  is  a  representative  one,  while  that  of  the 
United  States  Bank  was  a  monetary  aristocracy.     A  consoli- 
dated power,  based  upon  $275,000,000  of  bank  capital,  would 
be  greater  in  this  country,  than  that  of  the  Bank  of  England, 
which  regulates  the  trade  of  that  empire  in  its  prices  and  ex- 
changes.    But  it  is  not  proposed  to  centralize  this  power,  but 
only  to  create  a  board  of  advisers,  whose  opinions  would  be 
entitled  to  confidence,  because  they  would  be  based  upon  a 
national,  instead  of  local  or  sectional  policy,  thereby  producing 
greater  harmony  of  action  in  financial  movements.    The  policy 
of  having  another  national  bank  appears  to  be  finally  set  at 
rest,  and  perhaps  it  is  well  that  it  should  be  so,  since  politics 
and  finances  should  be  two  distinct  concerns ;  it  is  far  better 
that  the  policy  of  the  government  should  depend  upon  the 
prosperity  of  the  people,  rather  than  that  the  latter  should  de- 
pend upon  the  measures  of  the  government.     The  only  form 
in  which  the  fiscal  concerns  of  the  country  can  be  beneficially 
aided  by  the  government,  is  the  one  previously  suggested,  viz.: 
the  establishment  of  a  national  exchequer,  receiving  coin  at 
one  point  on  deposit,  and  issuing  bills,  payable  at  any  other 
in  the  country ;  thereby  equalizing  exchange,  and  superseding 
the  necessity  of  transporting  gold  from  city  to  city,  or  from 
east  to  west,  or  north  to  south. 

Until  some  uniform  national  system  of  bank  circulation  is 
adopted,  we  cannot  escape  the  evils  of  our  present  heteroge- 
neous currency.  The  issues  of  our  banks  ought  to  be  regu- 
lated by  the  state  of  our  foreign  exchanges,  restricting  them 
when  gold  is  flowing  out  of  the  country,  and  expanding  when 
it  is  coming  in.  But,  if  the  banks  in  our  commercial  cities 
curtail  their  circulation,  the  vacuum  is  soon  supplied  by  the 
country  banks,  who  eagerly  avail  themselves  of  the  opportu- 
nity, and  thus  nothing  is  gained,  but,  on  the  contrary,  much  is 
lost  by  having  the  substitute  of  a  weaker  currency ;  and  when 
a  pressure  comes,  these  lesser  banks  add  fuel  to  the  flames,  by 
their  importunate  cry  for  assistance  or  indulgence.  The 
efforts  of  the  banks  on  our  seaboard,  can  produce  but  little 
perceptible  effect  in  contracting  the  currency,  if  the  great  mass 


38 


ill 


of  thtf  interior  banks  persist  in  issuing  their  paper,  as  long  as 
they  have  confidence  in  their  customers,  or  the  public  are  wil- 
ling to  receive  it  We  therefore  need  a  general  restraining 
power,  voluntarily  bestowed  and  cheerfully  deferred  to,  which 
can  be  exerted  for  the  general  good,  and  until  we  have  this, 
the  currency  will  continue  to  be  fluctuating,  both  in  quantity 
and  quality. 

In  England,  after  one  hundred  and  fifty  years'  experience, 
they  have  settled  down  in  the  system  of  making  the  Bank  of 
England  the  principal  bank  of  issue,  and  this  gives  universal 
satisfaction  and  confidence.  But  in  this  country,  where  banks 
are  incorporated  by  independent  State  sovereignties,  the  same 
system  cannot  be  adopted ;  but  we  can,  if  we  choose,  appoint 
such  a  central  power,  from  our  own  widely  distributed  institu- 
tions, which  would  act  for  the  common  benefit  of  all  who 
would  join  in  the  alliance,  and  disregard  the  picaroons  upon 
the  currency,  who  could  safely  be  abandoned  to  their  fate.  By 
proper  regulations,  the  whole  currency  of  the  country  might  be 
reduced  to  that  perfect  regularity,  which  now  characterizes  the 
bank  notes  of  New  England,  and  which  has  been  effected 
within  twenty  years,  by  the  agency  of  one  bank  only,  in  Bos- 
ton. With  another  central  system  in  New  York,  another  in 
Cincinnati,  and  a  fourth  in  St.  Louis,  these  remote  points 
might  converge  to  a  common  centre,  and  the  harmonious 
action  of  the  whole  be  completed.  When  the  United  States 
Bank  was  in  operation,  we  had  in  that  institution  a  conserva- 
tive power,  which  checked  all  undue  extension  of  bank  issues; 
and  if  that  unfortunate  institution  had  not  mingled  politics 
in  its  influences  and  operations,  and  attempted  to  cripple  the 
measures  of  our  national  administration,  it  might  still  have 
been  in  existence,  to  regulate  our  currency  by  its  salutary  re- 
straints. That  bank  was  established  under  the  most  unfavor- 
able state  of  financial  affairs  which  has  marked  the  history  of 
the  country,  since  our  revolutionary  struggle ;  but  how  speed- 
ily were  all  our  exchanges  reduced  to  a  perfect  uniformity, 
and  all  the  unsound  banks  compelled  to  close  their  accounts 
and  disclose  their  insolvency.  If  its  president  had  not  aspired 
to  a  power  greater  than  that  of  our  national  executive,  and 
dispensed  his  favors  with  so  lavish  a  hand,  for  the  purpose  of 


partizan  warfare,  we  might,  even  now,  have  been  in  the  full 
possession  of  all  those  benefits  which  the  Bank  of  England 
dispenses  with  such  foresighted  sagacity  and  conservative 
protection. 

We  are  aware  that  this  proposed  general  convention  of 
banks,  and  appointment  of  a  general  committee,  will  be  pro- 
nounced by  some  as  chimerical,  and  by  others  as  impractical- 
ble.  So  was  the  Suffolk  bank  system  denounced  in  its 
incipient  operations,  and  yet  almost  every  bank  in  New  Eng- 
land is  now  associated  in  the  arrangement.  The  consequence 
is,  that  their  bills  are  received  in  New  York,  at  a  quarter  per 
cent,  discount,  while  those  of  Ohio,  Kentucky,  and  Indiana, 
equally  solvent  and  substantial,  are  at  a  discount  of  one  and  a 
quarter  per  cent. 

The  banks,  originally  established  in  this  country,  were 
founded  upon  a  purely  specie  basis.  Limited  in  number, 
independent  in  position,  and  of  commanding  influence,  their 
directors  had  a  pride  and  dignity  of  character  which  did  not 
need  the  restraints  of  legislation  to  insure  integrity  and 
fidelity  in  their  management.  Influenced,  it  is  true,  by  strong 
party  feelings,  so  universally  prevalent  in  the  early  part  of  the 
present  century ;  yet^  they  were  men  of  high  standing  in 
the  community,  whose  ideas  of  precision,  punctuality,  and 
method,  were  as  starched  as  their  ruffles,  and  as  unyielding  as 
their  politics.  These  banks  were  "intended  to  be  of  public 
utility,  and  more  particularly  beneficial  to  the  trading  com- 
munity," and  the  directors  were  content  with  six  per  cent,  per 
annum  for  the  loan  of  their  money  to  the  extent  of  $5000  to 
any  one  borrower,  in  the  aggregate,  for  the  limited  period  of 
two  months  only,  but  with  such  securities  as  "would  deter  an 
individual  in  these  modern  days  from  asking  for  a  discount. 
But  when  the  banks  became  more  numerous,  the  distinction 
of  being  a  bank  director  gradually  diminished  until  it  faded 
away,  and  at  last  came  within  the  reach  of  any  aspiring 
business  man.  But  competition  not  only  annulled  the  dis- 
tinction—  it  also  introduced  innovations  of  so  antagonistic 
a  character  that  the  cautious  were  startled,  and  legislative 
restrictions  were  found  to  be  indispensably  necessary  to 
protect  the  community  from  losses  of  various  kinds.     Each 


40 


41 


III 


succeeding  Legislature  witnessed  the  imposition  of  new  re- 
strictions, until  the  code  of  bank  laws  reached  a  complexity 
which  it  required  a  lawyer  to  unfold.  Now,  it  cannot  be 
denied,  that  it  is  the  duty  of  government  to  protect  the 
currency  of  the  country,  as  much  as  it  is  to  prevent  the 
circulation  of  false  coin,  or  the  use  of  false  weights  and 
measures.  Hence,  it  should  provide  against  the  issue  of 
bank  notes,  which  are  not  the  representatives  of  their  nominal 
value  in  coin,  but  many  of  these  laws  are  so  stringent  as  to 
render  them  onerous  and  even  oppressive.  Take,  for  instance, 
the  model  State  of  Massachusetts:  its  bank  laws  liminhe 
rate  of  interest  at  six  per  cent.,  and  yet  the  State  can  demand 
the  loan  of  ten  per  cent,  of  the  capital  stock  of  any  bank  for 
the  use  of  the  State  at  five  per  cent,  per  annum,  reimbursible 
in  five  annual  instalments.  They  require  ten  per  cent,  of  the 
amount  in  circulation,  always  to  be  kept  on  hand  in  specie, 
and  levy  a  tax  of  one  per  cent,  upon  the  amount  of  capital 
stock  annually ;  and  a  return  is  made  of  the  same  property  to 
the  assessors  in  the  towns  where  the  stockholders  reside,  and 
js  again  taxed  for  municipal  and  other  purposes.  The  law 
also  prohibits  each  bank  from  paying  out  from  its  own  coun- 
ter any  other  bills  than  its  own !  If  a  bank  has  issued  all  the 
currency  which  it  can  lawfully  do,  and  afterwards  receives  on 
deposit  ten  or  twenty  thousand  dollars  in  bills  of  other  banks, 
how  can  it  pay  the  checks  of  these  depositors?  But  the 
double  tax  law  of  Massachusetts  is  not  so  oppressive  as  the 
monstrous  anomaly  of  Ohio,  which  imposes  a  tax  on  the 
securities  deposited  for  the  circulation,  and  also  on  the 
average  amount  of  discounted  paper,  making  about  three  per 
cent,  on  the  capital  of  the  banks,  and  yet  limits  their  rates  of 
discount  to  six  per  cent,  per  annum.  This  latter  law,  indeed, 
is  so  preposterous,  that  unless  it  is  speedily  modified,  it  will 
necessarily  compel  every  banking  institution  in  the  State  to 
close  its  business.  It  is  such  laws  as  these  which  stimulate 
reckless  financiers  to  artifices  and  schemes  of  evasion,  wholly 
at  variance  with  the  principles  of  sound  banking.  One  of  the 
earliest  causes  of  disturbance  in  our  monetary  circles,  was  the 
creation  of  the  small  banks,  and  the  facility  with  which  their 
charters  or  corporate  rights  were  obtained. 


Experience  has  shewn,  that  whenever  a  pressure  existed,  it 
always  commenced  with  the  failure  of  some  small  bank  in  an 
interior  town,  where  it  had  been  probably  located  by  some 
bank  operator  for  the  purpose  of  using  its  notes  of  circulation 
in  some  region  where  a  railroad  was  in  the  process  of  con- 
struction, or  perhaps  buying  wool  or  wheat  in  some  interior 
State.  When  its  issues  had  become  so  large  as  to  attract 
attention,  its  notes  were  sent  home  for  redemption,  were 
dishonored,  and  the  bank  stopped  payment.  Other  banks  in 
the  vicinity  were  suspected,  and  met  wuth  like  treatment,  and 
perhaps  sufi'ered  the  same  fate.  The  public,  finding  that  these 
bank  notes  were  but  the  mere  promises  of  a  few  irresponsible 
associates  to  pay  their  nominal  value,  lost  confidence  in  some 
of  the  best  institutions,  and  confidence  once  destroyed,  the 
stock  of  coin  became  inadequate  to  meet  the  general  rush 
for  redemption,  and  much  embarrassment  ensued.  But  in 
addition  to  the  trouble  which  these  small  banks  have  created, 
there  has  also  been  disturbance  in  the  money  market,  growing 
out  of  the  competition  of  our  larger  banks  of  recent  formation, 
with  those  of  more  established  credit.  In  their  eagerness  to 
procure  depositors  and  customers,  or  secure  large  dividends, 
and  assume  their  share  of  notoriety  in  the  financial  operations 
of  the  day,  they  have  discounted  with  a  liberal  profusion, 
which  disregarded  the  amount  of  coin  on  hand,  or  the 
daily  receipts  of  the  bank;  and  trusting  to  the  abundance 
of  money  in  the  market  and  the  facility  with  which  it  could 
for  the  moment  be  obtained,  they  disregarded  the  contin- 
gencies which  so  suddenly  crippled  them,  and  have  been 
compelled  to  seek  for  aid  from  those  who  were  more  prudent 
than  themselves. 

Instances  of  this  sort  are  of  very  recent  occurrence,  but 
public  censure  is  not  severe  or  lasting  enough  to  prevent 
their  repetition.  Independent,  however,  of  their  own  loss 
of  standing,  such  banks  instigate  individuals  to  similar  ex- 
pansions of  credit,  and  encourage  speculation  to  a  danger- 
ous extent.  The  facilities  so  readily  obtained  are  as  recklessly 
invested,  and  the  inflation  becomes  so  general  that  it  is 
hazardous  to  arrest  its  progress ;  but  this  system  must  ulti- 
mately terminate  in  disastrous  results.     There  are  enterprises 


n^ 


s 


—  J     r 


42 

enough  at  the  present  moment,  actually  undertaken  to  tax  the 
labor  of  the  next  twenty  years  to  pay  for,  and  each  additional 
undertaking  opens  a  new  vista  to  still  more  magnificent 
projects.  Speculation  is  taking  a  deeper  hold  on  the  public, 
and  the  aspiration  to  grow  suddenly  rich  is  almost  universal. 
The  desire  of  grasping  wealth,  at  a  single  clutch,  is  visible  in 
almost  all  the  walks  of  life,  and  it  must  eventuate  in  the 
wreck  of  many  sanguine  hopes,  and  be  only  the  repetition  of 
the  events  of  former  years ;  fresh  in  the  memory  of  many 
of  those  who  are  again  pursuing  the  same  phantom  that  for- 
merly deluded  them.  The  history  of  all  our  bank  pressures  and 
panics  has  been  the  same  in  1825-37  and  '45,  and  the  causes 
given  in  two  simple  words  —  universal  expansion.  We  are 
too  apt  to  attribute  them  to  excessive  importations,  and  the 
consequent  absorption  of  our  gold  to  pay  our  foreign  balances, 
but  these  are  merely  auxiliary  causes.  When  money  is 
redundant,  and  capital  unemployed,  temptations  are  oflered 
to  the  adventurous,  and  speculation  becomes  rife  in  stocks ; 
lands,  railroads,  mines,  and  the  countless  fancy  stocks  which 
promise  such  flattering  results  in  such  a  brief  period.  Nor 
is  this  speculative  spirit  confined  to  our  commercial  cities ; 
it  pervades  the  whole  country,  and  a  fictitious  value  is  affixed 
to  everything  animate  and  inanimate,  moveable,  or  fixed, 
which  has  any  value  at  all.  The  property  thus  enhanced 
in  value,  without  reasonable  cause,  is  either  sold  to  some 
irresponsible  person,  or  perhaps  mortgaged  as  security  for 
some  other  speculation ;  pay-day  comes  round,  the  sober 
second  thought  discloses  the  infatuation,  and  the  dreamer 
awakes  to  the  perception  of  his  true  condition.  The  property 
is  sacrificed,  in  other  words,  sold  for  its  specie  value,  and 
the  speculator  is  ruined,  involving  in  his  fall  the  credulous 
individuals  who  have  trusted  in  his  supposed  forecast  or  his 
plausible  representations.  All  classes  of  society  feel  the 
shock  more  or  less,  and  the  general  outcry  is  against  the  banks, 
as  the  origin  of  the  evil.  These,  again,  are  but  auxiliaries. 
In  the  onset,  they  had  their  money  to  loan,  and  dispensed  it 
freely,  while  ii  was  in  their  power,  as  it  was  their  duty  to 
dp,  in  order  to  secure  good  dividends  for  their  stockholders; 
but  it  was  the  excess  of  confidence  out  of  the  banks  which 


41 

first  induced  speculation,  and  an  expansion  of  credit  to  its 
utmost  tension.     The  advanced  prices  of  property  of  every 
description,  the  impetus  given  to  the  construction  of  railroads 
and  steam-ships,  the  countless  projects  of  copper  mines,  coal 
mines,  and  iron  mines,  and  the  innumerable  fancy  stocks  of   \ 
all  kinds,  together  with  the  extravagance  which  grows  up  in    / 
the  style  of  living  and  habits  of  personal  expenditure,  the  / 
nameless   artificial  wants  and  luxuries  of  society,   have  all 
combined   to  create  a  demand  for  money,  greater  than  our 
increase  of  wealth,  when  measured  by  its  specie  value.     It^ 
is  these   things  which  lead  inevitably  to  a  stringent  money 
market  —  then  a  loss  of  confidence,  impaired  credit  —  tem- 
porary sacrifices,  and  final  insolvency.     And  it  is  best  that 
it  should  be  so,  for  the  occasional  sifting  of  the  chaff  from  the 
wheat  has  always  been  followed  by  periods  of  well  regulated 
trade,  reasonable  profits,  and  that  degree  of  thrift  with  which 
men  of  integrity  and  substance  are  contented.     Trade  flows 
on  its  natural  channels,  neither  impeded  by  artificial  barriers, 
nor  impelled  by  the  force  of  speculation. 

It  must  be  acknowledged  by  all,  that  an  uninterrupted 
course  of  prosperity,  caused  by  a  redundancy  of  currency,  and 
the  consequent  supply  of  bank  facilities,  would,  in  the  issue, 
be  prejudicial  to  the  permanent  welfare  of  the  country.  We 
have  had  experience  enough,  during  our  intervals  of  success, 
to  note  the  consequences  of  a  prosperous  career,  and  the  bene- 
fits have  never  been  equally  shared  by  the  community. 

Bold  and  reckless  speculators,  monopolists  in  every  branch 
of  trade,  wealthy  capitalists,  may  amass  fortunes;  but  the 
laboring  classes,  salaried  officers,  annuitants  of  every  sort,  pro- 
fessional men,  medical,  legal,  and  clerical,  derive  little  benefit 
from  the  golden  harvest,  but  always  share  their  full  proportion 
of  the  reverses,  which  inevitably  ensue. 

The  moral  tone  of  society  is  also  deteriorated  by  the  con- 
tinuance of  prosperity;  luxury,  with  its  enervating  influence, 
extravagance,  with  its  lavish  expenditures,  undermine  the 
foundation  of  our  moral  strength,  economy  and  integrity,  and 
corrupt,  not  only  our  morals,  but  our  legislation.  Reverses, 
then,  are  the  barriers  against  approaching  ruin,  and  banks, 
managed  by  conscientious  and  prudent  directors,  are  the  great 


h 


^ 


-y/v 


'■^ 


^\ 


44 

conservatives,  which  arrest  the  proclivity  of  financial  profligacy 
to  national  destruction.  What  reason  is  there  then,  in  the 
popular  outcry  in  the  dominant  party  against  banks,  when  it 
is  obvious  that  they  are  the  only  safeguards  for  the  protection 
of  the  industrial  classes  ? 

The  daily  wages  of  the  laborer  and  the  operative  have 
never  yet  kept  pace  with  the  high  prices  of  produce  or  manu- 
factures; nor  do  our  seamen  always  participate  in  the  advanced 
rate  of  freights,  in  our  commercial  marine,  in  what  are  termed 
prosperous  times.  We  have  established,  by  law,  gold  and 
silver,  as  our  standard  of  value,  and  when  we  advance  the 
price  of  everything  else  about  us,  we  obstinately  adhere  to  the 
same  valuation  of  the  wages  of  labor.  Hence,  the  numerous 
"  strikes"  among  the  operative  classes;  and  the  justice  of  their 
demands  for  higher  wages  cannot  be  denied,  however  objec- 
tionable we  may  regard  their  mode  of  seeking  redress.  If  the 
standard  value  of  wages  is  to  be  estimated  partly  by  the  cost 
of  subsistence,  we  ought  to  advance  the  rate  when  prices  are 
high,  as  well  as  reduce  them  when  the  market  is  depressed ; 
but  although  the  latter  course  is  frequently  adopted,  the  former 
is  submitted  to  with  evident  reluctance. 

But  we  return  from  this  digression.  We  have  shewn  that 
there  are  three  systems  of  banking,  in  vogue  in  the  United 
States,  and  the  question  arises,  which  of  the  three  is  the  best? 
which  affords  the  greatest  security  to  the  public,  consistently 
with  the  just  remuneration  to  those  who  embark  their  capital 
in  the  operation?  We  can  have  no  hesitancy  in  stating  our 
predilection  to  be  altogether  in  favor  of  the  specie  system,  in 
preference  to  the  safety  fund  system,  which  has  been  found  to 
be  inadequate,  or  the  free  banking  system,  which  has  but  a 
paper  basis,  although  it  may  consist  of  government  securities 
only.  We  have  recently  witnessed  the  tendency  of  our  Legis- 
latures to  enlarge  the  class  of  bonds  which  might  be  taken  as 
sureties  for  circulation,  and  a  bill  has  been  passed  by  the  Leg- 
islature of  New  York,  (not  yet  signed,  however,  by  the  gover- 
nor,) allowing  city  stocks  to  be  taken  as  deposits  for  bank 
issues,  and  it  is  further  proposed  to  take  railroad  bonds  for  the 
same  purpose.  Should  these  plans  be  adopted  by  other  States, 
we  shall  then  be  supplied  with  a  basis,  as  expansive  as  the 


Sc 


3s: 


It 

M 


45 


wildest  speculator  could  desire.  A  few  roads  like  the  New 
York  and  Erie,  the  Albany  and  Buffao,  the  Reading,  the  Balti- 
more and  Ohio,  the  Ohio  and  Mississippi,  and  the  Illinois 
Central,  would  supply  all  the  materials  for  banking  operations, 
and  we  might  increase  our  banking  capital  to  $500,000,000,  if 
parties  chose  to  embark  in  such  a  visionary  scheme;  but  would 
the  real  wealth  of  the  country  be  thereby  increased  ?  The 
banks  in  Massachusetts  can  now  legally  issue  $33,000,000 
more  paper  than  they  now  have  in  circulation,  if  the  wants 
of  the  community  required  it;  but  "circulation  does  not  keep 
pace  with  the  advance  of  business,  for  the  plain  reason  that  it 
is  used  only  in  few,  and  those  only  the  smaller  commercial 
transactions."  Why  then  should  we  place  it  in  the  power  of 
a  few  bank  operators,  to  flood  us  with  a  rag  currency,  when 
the  notes  of  solvent  banks  can  be  readily  obtained  by  all  who 
have  the  means  to  procure  them  ?  The  committee  on  banks 
and  banking,  of  the  present  Legislature  of  Massachusetts,  close 
their  admirable  report  with  the  following  judicious  warning. 

"  The  committee  have  freely  commended  the  present  system 
of  banking,  and  the  code  of  laws  that  govern  it,  and  have 
treated  its  circulation  as  the  best  and  safest  of  any  now  known 
in  the  country.  The  banks,  however,  are  not  beyond  the 
reach  of  adversity.  With  men,  and  other  business  corpora- 
tions, they  are  on  the  high  tide  of  business,  and  tempests, 
coming  from  distant  quarters,  whelm  them  beneath  the  waters, 
without  any  fault  of  their  own.  Channels  of  trade  now  full, 
may  dry  up  ;  important  departments  of  industry  may  be 
broken  down;  the  earth  may  not  yield  its  fruits  through 
the  unpropitious  seasons;  wars  may  dam  up  or  reverse  the 
great  currents  of  trade;  embargoes  and  non-intercourse  may 
sweep  commerce  from  the  ocean ;  and  when  the  whole  com- 
munity is  overwhelmed  with  embarrassment,  by  events  so 
great  and  controlling  in  the  commerce  of  the  world,  it  is  not 
expected  that  our  banks  will  escape.  They  are  not  perfect, 
they  are  the  best  we  know  how  to  establish.  The  leading 
duty  of  the  government  is  to  provide  for  the  safety  and  conver- 
tibility of  the  circulation."  With  such  a  policy  as  these  views 
present,  it  is  no  wonder  that  Massachusetts  bank  bills  are  cur- 
rent throughout  the  whole  country. 


['J 


I 


* 


I 


'i  ■ 

'f'i 


r.  , 


^  i 


4ft 

The  present  period  is  remarkably  favorable  for  the  estab- 
lishment of  all  our  banks  on  a  specie  basis.     For  the  last  four 
years  gold  has  been  accumulating  in  the  country,  at  an  aver- 
age rate  of  twenty-four  millions  of  dollars  per  annum,  after 
deducting  the  amount  exported  to  foreign  countries,  and  the 
prospect  now  is,  that  this  large  supply  will  still  further  be  in- 
creased.    If,  then,  gold  should  forthwith  take  the  place  of  all 
our  five  dollar  notes  and  smaller  bills,  and  afterwards  those  of 
ten  dollars,  there  would  be  such  a  distribution  of  it  through- 
out the  country,  that  we  should  be  protected  from  all  hazard 
of  panics,  and  render  the  community  more  secure  against  the 
circulation  of  spurious  bills.     The  great  producing  States  of 
Ohio,   Indiana,  Illinois   and    Michigan,  would  no  longer  be 
flooded  with  a  paper  currency  as  they  now  are,  but  would  at 
once  enjoy  the  same  privileges  as  those  of  the  New  England 
States  and  New  York,  Maryland,  Kentucky,  South  Carolina 
and  Louisiana. 

It  has  been  previously  remarked,  that  the  safety  fund  sys- 
tem was  found  to  be  inadequate  for  the  perfect  protection  of 
the  community,  and  so  far  as  the  experience  of  New  York  has 
furnished  the  evidence,  we  have  the  authority  of  the  comp- 
troller of  the  State,  in  1849,  that  "the  system  was  wholly 
inadequate  for  the  object  intended."     But  in  Ohio,  where  the 
system  is  in  operation,  it  is  found  to  afford  universal  satisfac- 
tion.    But  the  reason  of  this  is,  that  the  specie  basis  is  inter- 
woven as  a  main  feature  in  the  system,  and  the  branches  of 
the  State  Bank,  as  well  as  the  independent  banks,  are  required 
to  have  "  at  all  times  on  hand  in  gold  and  silver  coin,  or  their 
equivalent  in  value,  one  half  at  least  of  which  shall  be  in  gold 
and  silver  coin  in  its  vault,"  an    amount  equal  to   at  least 
thirty  per  cent,  of  the  amount  of  outstanding  notes  of  circula- 
tion.     Accordingly,  in   their  last  reports,  the  banks   return 
$13,854,000  specie  fund,  against  a  circulation  of  $11,400,000, 
or  more  than  thirty-four  per  cent.,  besides  a  safety  fund  of 
$875,000. 

But  the  bank  system  of  this  State  was  so  carefully  ar- 
ranged in  1845,  both  in  regard  to  the  apportionment  of  the 
capital  among  the  districts  of  the  State,  and  guarded  by  so 
many  checks  and  restraints,  that  it  cannot  be  regarded  other- 


4P7 


wise  than  as  one  of  the  most  perfect  in  the  States.  Unfortu- 
nately, however,  the  legislation  of  the  last  two  years  has  been 
characterized  by  wanton  animosity  against  the  banks,  and 
their  unjust  tax  laws  must  necessarily  destroy  the  existing 
banks,  and  convert  these  chartered  institutions  into  private 
banking  establishments.  The  banks  in  the  State  are  not  only 
among  the  safest  and  best  in  the  country,  but  they  hold  them- 
selves amenable  to  all  just  laws,  and  have  never  bid  defiance 
to  them.  But  the  "Crow  Bar"  law,  as  it  is  styled  in  Ohio, 
violates  the  Constitution  of  the  United  States,  which  prohibits 
any  State  from  passing  an  ^''  ex  post  facto  ^^  law. 

Now,  a  law,  which  imposes  a  penalty  for  a  past  delinquen- 
cy, is  something  novel  in  legislation,  and  the  "Crow  Bar" 
law  "  does  this,  by  imposing  a  penalty  of  five  per  cent,  on  all 
taxes,  which  are  now  unpaid,  and  authorizes  the  treasurer  to 
break  open  any  safe,  vault  or  door,  and  take  possession  of  as 
much  coin,  bank  notes,  bills  of  exchange,  or  other  property,  as 
may  be  required  to  settle  his  demand,  notwithstanding  the 
guarantee  in  both  the  State  and  Unked  States  Constitutions, 
of  the  *  security  of  persons,  houses,  papers  and  possessions 
against  unreasonable  searches  and  seizures.'  " 

Certainly  the  banks  possess  the  same  rights  which  individuals 
enjoy,  of  appealing  to  the  highest  judicial  tribunals,  to  ascertain 
the  validity  of  such  a  law,  and  finding  it  unconstitutional,  to  re- 
sist its  enforcement  by  all  proper  legal  measures.  Beyond  this, 
no  effort  has  yet  been  made  to  evade  their  just  share  of  the 
public  tax,  and  yet  this  summary  process  of  violence  is  legal- 
ized, and  the  plainest  constitutional  guarantees  trampled  upon, 
without  hesitancy,  or,  rather,  with  a  boldness  which  only 
characterizes  despotism.  Such  a  law,  however,  will  never  be 
sustained  by  the  good  sense  of  the  people,  who  have  never  in- 
dicated any  inclination  to  carry  on  an  unmanly  and  predatory 
warfare  even  against  the  banks,  and  it  could  never  be  enforced 
without  the  aid  of  elective  judges,  who  allow  their  partizan 
feelings  to  sway  their  decisions,  in  violation  of  all  the  princi- 
ples of  equity  embodied  in  our  jurisprudence,  and  confirmed 
by  a  long  line  of  venerated  judges  who  have  filled  the  highest 
judicial  stations  in  our  country.  Should,  however,  these  per- 
verse decisions  of  the  Ohio  judges  be  carried  into  practical 


m 


rl 


48 


execution,  and  the  contracts  stipulated  in  the  charters  of  the 
banks  be  declared  nugatory,  then  inevitable  destruction  must 
await  them  all,  for  they  cannot  sustain  the  imposition  of  such 
an  exorbitant  tax. 

In  the  imperfect  review  of  the  two  systems  of  Massachu- 
setts and  Ohio,  here  presented,  we  have  cited  the  strongest 
illustrations  of  the  relative  merits  of  the  specie  basis,  and  the 
safety  fund  scheme,  and  it  may  be  a  matter  of  serious  consid- 
eration, whether  these  two  systems  of  banking  are  not  the 
very  best  for  the  permanent  prosperity  of  the  country,  viz. : 
a  limited  currency  in  the  older  States,  based  upon  capital  paid 
in  coin,  and  in  the  States  of  more  recent  date,  a  circulation 
based  upon  coin,  and  the  security  of  State  stocks.  In  the 
great  valley  of  the  Ohio  there  is  a  large  amount  annually 
required  for  the  purchase  of  produce,  and  for  which  really  sub- 
stantial currency  is  preferred  to  coin,  and  the  notes  of  Ohio, 
Indiana,  and  Kentucky  are  more  readily  taken  than  those 
of  the  New  England  States  and  New  York.  Great  facilities 
are  thus  afforded  to  trade,  and  the  value  of  the  annual  crops 
is  greatly  enhanced,  and  added  to  the  increasing  wealth  of  this 
region.  The  constant  accumulation  of  capital  in  the  Eastern 
cities  constitutes  an  effectual  check  against  any  undue  expan- 
sion of  currency  in  the  Western  States,  and  the  use  of  it  is 
confined  to  payments  for  their  own  produce,  or  domestic  spec- 
ulation. Any  diversion  of  it  into  extraneous  channels,  is 
speedily  returned  to  its  fountain-head. 

It  is  a  remarkable  trait  in  the  character  of  the  inhabitants 
of  the  Western  States,  that  they  all  prefer  the  paper  of  their 
own  State  to  that  of  any  other,  and  even  the  banks  reject 
Eastern  notes,  when  in  fact  they  are  worth  half  per  cent,  pre- 
mium, for  the  operations  of  exchange.  But  Ohio,  Kentucky, 
and  Indiana  have  such  close  business  connections,  that  the 
paper  of  these  States  enjoys  a  widely  extended  circulation, 
and,  with  that  of  Virginia,  is  all  bankable  in  Cincinnati,  not- 
withstanding the  laws  expressly  prohibit  the  circulation 
of  any  bank  notes  out  of  the  State,  of  a  less  denomination 
than  five  dollars.  These  four  States,  with  a  bank  capital 
of  $31,200,000,  have  a  circulation  of  $38,314,000,  and  specie 
on  hand  for  redemption  $12,740,000,  but  the  amount  is  wholly 


49 


inadequate  to  purchase  the  annual  surplus  products  of  these 
States,  and  the  bills  of  the  Eastern  States  are  freely  used  in 
the  interior  for  purchases,  and  must  be  vastly  more  current, 
while  the  various  railroads  are  in  the  process  of  construction 
throughout  the  West 

The  large  amounts  of  currency  required  by  these  gigantic 
projects,  many  of  which  are  now  in  the  course  of  active 
operation  and  construction,  will  call  for  a  supply  which  it  will 
be  difficult  to  meet  without  the  aid  of  Eastern  bills,  for  the 
Western  banks  have  already  issued  their  quota  of  three  of  pa- 
per for  one  of  coin,  and  without  this  auxiliary  supply,  we  fear 
that  the  "  public  stock  banks  "  of  Indiana,  and  the  "  free  banks 
of  Illinois  "  must  supply  the  vacuum ;  whereas  the  New  Eng- 
land banks  alone  can  issue  seventy  millions  more  currency, 
and  still  be  within  the  limits  of  their  chartered  rights. 

In  relation  to  the  free  banking  system,  little  need  be  said, 
beyond  the  comments  in  the  report  to  the  Massachusetts 
Legislature,  one  extract  from  which  has  already  been  quoted. 
In  reference  to  stocks  pledged  as  securities  for  circulation  by 
the  free  banks,  it  says : 

"  These  stocks,  when  obtained  and  deposited  according  to 
law,  do  not  furnish  so  good  a  currency  as  our  present  system 
provides.  The  value  of  a  currency  consists  in  its  immediate 
convertibility  into  specie  at  the  will  of  the  holder,  not  on  the 
fact  that  the  bill  may  be  secured  by  a  mortgage,  which  will  in 
time,  perhaps  after  a  lawsuit,  bring  him  the  specie ;  but 
whether  the  holder  can  at  any  time,  for  the  asking,  have  his 
bill  redeemed.  The  bank,  promising  to  pay,  needs  to  be  in 
constant  readiness  to  fulfil  its  promise,  and  it  is  obvious  that 
a  bank,  with  its  capital  guardedly  invested  in  a  commercial 
loan,  that  is  being  paid  back  on  its  counter  every  day,  is  in  a 
more  eligible  situation  to  pay  its  own  promise,  than  it  would 
be  if  a  large  portion  of  its  capital  were  wrapped  up  in  stocks, 
and  stowed  away  in  the  pigeon-holes  of  the  State  auditor. 
The  stocks  may  be  good,  but  they  are  out  of  the  reach  of  the 
promisors  for  their  present  wants.  Delay  in  payment  is  a 
failure  to  fulfil  the  promise,  and  affects  the  currency  as  inju- 
riously as  doubt  about  its  ultimate  security. " 

We  commend  the  preceding  extract  to  the  deliberate  con- 

5 


k<:^ 


sideration  of  all  free  banking  legislators,  and  we  think  that 
they  will  find  it  hard  to  gainsay.  Now,  if  these  objections 
can  be  alleged  against  State  stocks  as  securities,  how  much 
stronger  are  they  against  the  bonds  of  counties,  cities,  and 
towns,  against  mortgages  of  real  estate  and  railroads.  If  in- 
deed the  latter  are  adopted  as  collateral  securities,  we  see  no 
impediments  in  the  way  of  the  construction  of  the  Pacific 
railroad.  The  projectors  have  but  to  organize,  and  we  be- 
lieve they  have  done  so  ahready,  build  a  section  of  their  road, 
and  without  further  capital  than  a  good  paper-milh,  some 
bank-note  plates,  and  a  printing-press,  they  can  commence 
operations  as  soon  as  the  exploring  engineers  have  completed 
their  surveys  and  reports.  There  is  now  in  the  State  of 
Michigan,  a  railroad  corporation,  with  a  bank  attached  to  it, 
but  whether  intended  to  be  the  locomotive  or  the  baggage  car, 
we  know  not;  but  it  is  a  very  thriving  bank,  and  with  $100,000 
capital,  has  $93,000  specie  in  its  vaults,  and  enjoys  a  circula- 
tion of  $279,000.  The  railroad  part  of  the  business  has  not, 
we  believe,  yet  been  commenced,  but  we  wish  that  there  were' 
more  of  such  banks  in  the  same  State  to  supplant  the  circula- 
tion of  the  "  wild-cat "  money  there. 

The  advocates  of  this  system  in  New  York  still  adhere  to 
it  with  persistence,  notwithstanding  all  their  early  experience 
of  its  inadequacy,  and  their  more  recent  loss  by  the  James 
Bank,  and  the  Bank  of  New  Rochelle,  whose  pledged  bonds 
and  mortgages  was  sold  at  twenty-eight  and  forty-one  per 
cent,  of  the  amount  for  which  they  were  deposited.  But 
since  this  system  was  introduced,  there  has  been  no  protracted 
crisis  to  test  its  strength.  With  the  exception  of  the  pressure 
of  1845,  the  country  has  enjoyed  unexampled  prosperity,  but 
we  cannot  expect  this  to  continue  always.  If  in  the  course 
of  events,  our  cotton  crop  should  fail,  as  the  corn  and  potato 
crops  did  in  England  and  Ireland  in  1846,  how  speedily  would 
our  surplus  supplies  of  gold  disappear,  and  with  it  the  false 
estimate  we  now  place  on  all  our  possessions.  Our  inflated 
currency  would  then  find  its  proper  level,  stocks  would  depre- 
ciate, the  prices  of  everything  would  fall,  our  railroad  con- 
structions would  be  suspended,  and  the  amount  expended 
remain  for  a  time,  at  least,  a  dead  weight  on  the  community. 


51 


But  we  have  no  wish  to  pursue  the  subject,  for  the  conse- 
quences must  be  obvious  to  every  mind.  Before  we  dismiss 
it,  however,  we  must  re-state  one  other  objection  to  the 
system ;  and  that  is,  that  it  permits  bank  operators  in  distant 
places  to  establish  banks  in  other  States,  to  issue  bills  for 
circulation  only,  disregarding  the  other  privileges  of  banking, 
and  by  establishing  an  agency  in  some  commercial  city,  New 
York,  for  instance,  for  their  redemption  at  one  half  or  even 
one  per  cent,  discount,  collect  large  amounts  and  issue  them 
again,  and  by  this  repeated  issue  and  redemption  levy  a  heavy 
tax  upon  the  community.  We  have  recently  experienced 
enough  of  these  operations  in  the  Indiana  and  Illinois  cur- 
rency, which  was  at  one  time  foisted  upon  New  York  as  a 
circulating  medium,  but  it  was  indignantly  driven  home  again 
and  not  permitted  to  supplant  their  own  free  bank  notes. 

The  truth  is,  that  the  payment  in  specie  of  bank  notes  on 
presentation  is  the  indispensable  requisite  of  sound  banking. 
Without  this  basis,  bank  notes  are  mere  tokens,  current  it 
may  be  in  their  own  State  or  neighborhood,  but  of  depreciated 
value  elsewhere.  A.  may  purchase  goods  of  B.,  and  tender 
him  in  payment  therefor  an  inconvertible  currency.  It  is  a 
mutual  contract,  and  the  parties  understand  each  other.  B. 
however  has  occasion  to  purchase  goods  in  another  State  of 
C,  and  must  submit  to  a  discount  on  the  currency  he  has 
received  of  A.,  and  makes  his  contract  accordingly  with  C.  to 
that  efiect.  But  C.  has  to  import  his  goods  from  a  foreign 
country,  and  A.'s  inconvertible  paper  is  of  no  value  to  him 
for  this  purpose,  and  he  must  employ  other  means  to  procure 
his  foreign  supply,  and  is  thus  compelled  to  obtain  exchange 
or  gold,  to  deal  with  his  foreign  correspondent.  Thus  the 
bank  notes  of  A.  are  at  first  sold  at  a  discount,  and  finally 
found  useless  by  the  importer ;  whereas,  if  they  had  been 
redeemable  in  specie,  they  would  have  passed  at  nearly  par 
through  the  hands  of  all  parties.  When  the  value  of  our 
imports  exceeds  that  of  our  exports,  our  coin  or  our  public 
stocks  must  supply  the  deficiency.  So  long  as  the  public 
stocks  may  command  favorable  prices  in  Europe,  and  money 
can  be  obtained  there  at  lower  rates  than  at  home,  the  country 
is  benefitted  by  the  operation,  since  the  transactions  furnish 


I 


?! 


i 

r.. 


52 


[■•: 


domestic  capital  on  favorable  terms ;  but  when  specie  is 
required,  the  currency  throughout  the  country  is  immediately 
affected;  the  money  market  becomes  stringent,  and  prices 
decline ;  producing  a  greater  loss,  perhaps,  in  the  aggregate, 
than  the  amount  of  previous  profits  on  the  imported  goods. 
If,  however,  specie  was  the  basis  of  all  transactions,  or  in 
other  \vords,  convertible  bank  paper,  the  value  of  property 
would  remain  more  stationary,  and  there  would  not  be  such 
constant  fluctuations  in  trade.  If  we  have  a  currency  based 
upon  stocks,  the  holders  of  bank  notes  may  be  ultimately 
secure  of  the  payment  of  their  bills,  but  the  majority  of  the 
banks  would  be  of  ephemeral  existence,  since  one  after 
another  they  would  be  driven  into  liquidation,  and  all  of 
them  might  be  so  if  any  concerted  eflbrt  should  be  made  to 
produce  such  a  catastrophe.  At  any  rate,  they  would  be 
compelled  to  keep  their  circulation  down  to  so  low  a  point, 
that  they  would  derive  but  little  benefit  from  their  issues. 

Even  the  Bank  of  England  could  not  maintain  the  par 
value  of  her  notes  in  Great  Britain  ;  although  possessed  of 
such  immense  wealth,  backed  by  the  resolutions  of  her  House 
of  Commons,  and  declared  by  it  to  be  of  equal  value  to 
the  coin  of  the  realm;  and  their  final  depreciation  reached 
twenty-five  per  cent.,  notwithstanding  the  confidence  of  the 
community  in  the  bank's  solvency,  the  support  of  the  gov- 
ernment, and  the  management  of  its  revenue. 

We  reiterate,  that  gold  and  silver  are  the  only  conservative 
power  which  we  have  to  regulate  the  state  of  our  currency, 
and  to  prevent  that  ruinous  inflation,  in  which  our  banks 
would  indulge,  but  for  this  check  upon  their  issues.  All 
other  kinds  of  property  have  a  fictitious  value,  which,  in  periods 
of  continued  prosperity,  is  enhanced  beyond  the  limits  of 
reason  or  common  discretion.  At  such  times  the  banks  them- 
selves aid  the  popular  delusion,  by  stretching  their  utmost 
spread  of  canvas  to  court  the  favoring  breeze;  but  when 
caught  aback,  are  the  most  alarmed  at  the  perils  which  they 
are  sure  to  encounter.  Instead  of  becoming  auxiliary  to 
others,  they  but  increase  the  panic  and  aggravate  the  troubles 
which  foresight  might  have  prevented.  Our  experience  has 
shewn,  that  the  contraction  which  succeeds  an  uninterrupted 


53 

course  of  prosperity  is  more  disastrous  than  if  the  community 
had  never  enjoyed  any  bank  extension.  If  the  effect  of  these 
fluctuations  was  confined  to  the  speculators  who  originated 
them,  there  would  be  little  to  excite  public  anxiety  or 
sympathy  ;  but  the  misfortune  is,  that  they  reach  the  indus- 
trial classes  of  society,  and  all  who  are  dependent  on  their 
daily  labor  for  the  means  of  support.  When  the  banks  fail  to 
redeem  their  circulation,  it  is  not  the  merchant,  the  manu- 
facturer, or  the  large  trader  who  are  the  sufferers  —  their  funds 
are  in  safe  deposit;  but  the  laborer,  the  artizan,  and  the  small 
dealer,  who  receive  their  ten  or  twenty  dollars  per  week,  who 
are  despoiled  of  their  hard  earnings.  It  is  not,  therefore, 
surprising,  that,  among  those  classes  of  society,  there 
should  exist  a  jealousy  of  banks,  when  they  are  always  in 
jeopardy  from  bankrupt  or  counterfeit  notes,  since,  in  the 
interior,  most  of  them  are  unacquainted  with  the  character  of 
the  currency  which  is  proffered  them  in  payment.  For  one, 
we  have  for  a  long  time  entertained  the  opinion,  that  no  bank 
should  be  allowed  to  issue  a  bill  of  a  lower  denomination  than 
five  dollars,  and,  after  a  reasonable  interval,  none  under  ten; 
and  this  regulation  would  supply  the  country  with  gold  and 
silver,  which  the  aggregation  of  wealth  is  quite  sufficient  to 
furnish.  We  should  then  accumulate  a  stock  of  coin  in  the 
hands  of  the  people,  large  enough  to  aid  the  banks  when 
a  foreign  demand  drained  us  of  our  specie,  and  which  would 
not  last  beyond  a  single  season,  and  thus  prevent  those 
dreaded  periods  of  panic  which  have  engulphed  so  many 
substantial  fortunes  by  their  sudden  advents  and  ruinous 
effects. 

«  Labor,"  says  Adam  Smith,  "  was  the  first  price,  the  origi- 
nal purchase-money,  paid  for  all  things.  It  was  not  gold  and 
silver,  but  by  labor,  that  all  the  wealth  was  originally  pur- 
chased." "  Of  the  products  of  the  earth  useful  to  the  life  of 
man,"  says  Locke,  "nine  tenths  are  the  effects  of  labor;  nay, 
if  we  will  rightly  estimate  things  as  they  come  to  our  use,  and 
cast  up  the  several  expenses  about  them,  what  in  them  is  purely 
owing  to  nature  and  what  to  labor,  we  shall  find  that  in  most 
of  them,  ninety-nine  hundredths  are  wholly  to  be  put  on  the 
amount  of  labor." 


i- 


I 


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■1 


54 


if 


iiSi 


m 


N 


Labor  creates  capital  by  its  accumulated  products,  co-ope- 
rates in  facilitating  production,  and  then  combines  in  acquiring 
greater  profits,  which  again  act  as  incentives  to  further  accu- 
mulation. The  acquisition  of  wealth  is  stimulated  by  the 
desire  to  rise  in  the  world ;  hence,  the  tendency  to  save  and 
amass,  and  the  origin  of  economy  and  parsimony.  "  Labor 
and  capital  are  as  essential  to  the  growth  of  opulence  and 
civilization,  as  the  heart  and  the  lungs  are  to  animal  exist- 
Now,  if  by  any  process,  we  give  to  capital  any  undue 


ence. 


relative  preponderance  over  labor,  we  disturb  their  concert  of 
action ;  and  we  know  no  method  by  which  this  is  more  fre- 
quently effected,  than  by  the  factitious  means  of  enhancing 
the  value  of  the  former,  while  the  latter  remains  stationary. 
When,  by  the  expansion  of  our  currency,  we  double  the 
value  of  property,  temporarily  although  it  may  be,  we  do  not, 
at  the  same  time,  render  equal  justice  to  labor.  Besides,  sudden 
appreciation  of  property  tends  to  habits  of  extravagance,  and 
the  elementary  and  most  enduring  basis  of  prosperity  is  under- 
mined. Hence  all  sudden  expansions  are  disastrous  to  the 
true  welfare  of  a  country,  for  a  sure  and  slow  growth  alone 
ensures  permanent  advancement. 

Now,  which  of  the  three  systems  of  banking,  which  we 
have  been  considering,  is  the  most  likely  to  produce  this  artifi- 
cial inflation  ?  We  think  there  can  be  but  one  answer  to  the 
question.  Gold  is  the  proceeds  of  labor  and  capital  combined, 
and  simply  gives  a  remunerative  return  to  those  who  procure 
it.  It  has  for  centuries  been  the  standard  of  the  civilized 
world,  and  neither  deteriorates  by  time,  nor  depreciates  in 
value.  And  although  for  a  short  period  it  has  been  showered 
upon  us,  with  Daneean  profusion,  from  California  and  Austra- 
lia, yet  no  depreciation  has  yet  taken  place  to  alarm  the  capi- 
talists, either  at  home  or  abroad.  If  there  ever  should  be  such 
a  thing  as  an  undue  expansion  of  this  medium,  we  have  only 
to  re-adjust  the  wages  of  labor,  with  reference  to  the  cost  of  a 
comfortable  subsistence  and  a  reasonable  profit;  and  capital 
and  labor  will  again  be  placed  in  their  true  position  and  natu- 
ral equality. 

But  we  have  less  cause  of  solicitude  about  the  prospective 
value  of  gold,  than  we  have  in  regard  to  the  present  state  of 


55 


our  currency.  The  multiplication  of  banks  is  going  on  with 
fearful  rapidity,  some  originating  with  parties  who  have  sur- 
plus capital,  and  wish  to  facilitate  their  own  and  their  neigh- 
bor's commercial  transactions ;  with  others,  who  wish  to  invest 
funds  for  the  sake  of  the  income ;  with  another  class,  who  are 
solicitous  to  create  bank  capital  for  the  supply  of  their  business 
wants;  and  lastly,  with  those  whose  sordid  motive  is  that  of 
speculating  upon  the  community,  by  foisting  upon  it  notes  of 
circulation,  and  then  decrying  their  value,  to  purchase  them 
back  again  at  a  discount,  and  finally  to  abandon  their  redemp- 
tion on  any  terms. 

We  have  in  the  United  States,  at  the  present  moment, 
about  one  thousand  and  seventy-five  banks,  wrtir"capttais 
amounting  to  $280,000,000,  and  a  circulation  of  $175,000,000, 
predicated  on  less  than  $60,000,000  of  specie.  The  discount- 
ed paper  of  these  banks  is  probably  not  less  than  $500,000,000, 
and  our  bonds  and  stocks  held  in  Europe  are  probably 
near  $300,000,000  more,  making  an  aggregate  of  about 
$800,000,000.  Now  the  value  of  this  immense  amount  of 
credit  is  affected  by  the  condition  of  our  money  market,  and 
a  diminution  of  ten  per  cent,  of  its  amount  is  equivalent 
to  the  loss  of  one  of  our  annual  cotton  crops.  Should  we 
allow  a  few  reckless  adventurers  to  trespass  upon  the  rights  of 
others,  and  by  the  agency  of  a  few  small  banks,  scattered 
throughout  the  country,  disturb  our  financial  equilibrium,  and 
depreciate  the  value  of  property,  by  causing  needless  fluctua- 
tions ? 

To  render  banking  institutions  conducive  to  the  permanent 
prosperity  of  the  country,  with  such  mischievous  influences  in 
operation,  is  as  visionary  as  would  be  the  expectation  of 
victory  in  a  battle,  fought  by  an  army  of  volunteers,  each 
company  acting  under  the  independent  orders  of  its  own  cap- 
tain, without  concert  of  action,  against  a  disciplined  force, 
marshalled  by  the  hero  of  a  hundred  conflicts. 

We  arrive,  then,  at  the  conclusion,  that  however  perfect  the 
banking  systems  of  Massachusetts  and  Ohio  may  be,  there  is 
something  further  needed  to  promote  harmony  of  action,  and 
consentaneous  movements  in  our  financial  operations.  With- 
out a  central  organization,  voluntarily  created  by  the  banks. 


I 


> 


,r 


■1 


56 


and  adopted  as  a  permanent  affiance,  our  banking  institutions 
will  continue  to  be  perturbing  forces,  without  the  central  sun 
of  our  planetary  system,  to  retain  the  revolving  bodies  in  their 
orbits,  and  prevent  devious  movements.  In  the  language  of 
that  valuable  journal,  the  Banker's  Magazine,  "  This  all- 
important  banking  interest  requires  a  combined  effort  in  its 
direction,  and  it  is  only  by  a  concert  of  action  among  its  man- 
agers, that  it  can  be  made  to  accomplish  the  most  good." 


;i 


I 


BANKS  AND  BANKING 


IN      THE 


( 

i. 

i  . 
I 

I. 


UNITED  STATES. 


It-. 


PART    II: 


RELATING    TU    THE    STATES 


OF 


1 


KENTUCKY,  OHIO,  INDIANA,  AND  ILLINOIS 


BY 


HENRY   F.  BAKER, 


OF     CINCINNATI. 


•5 


i 


k 


CINCINNATI: 

nilNTEl)  BY  C.  F.  mi.VDl.EY  &  CO.,  U?  MAIX  STREET. 

1854. 


ip 


INTENTIONAL  SECOND  EXPOSURE 


56 


IM 


and  adopted  as  a  permanent  affiance,  our  banking  institutions 
will  continue  to  be  perturbing  forces,  without  the  central  sun 
of  our  planetary  system,  to  retain  the  revolving  bodies  in  their 
orbits,  and  prevent  devious  movements.  In  the  language  of 
that  valuable  journal,  the  Banker's  Magazine,  "  This  all- 
important  banking  interest  requires  a  combined  effort  in  its 
direction,  and  it  is  only  by  a  concert  of  action  among  its  man- 
agers, that  it  can  be  made  to  accomplish  the  most  good." 


BANKS  AND  BANKING 


IN      THB 


UNITED  STATES. 


PART  II: 


RELATING  TO  THE  STATES 


or 


KENTUCKY,  OHIO,  mDIAM,  AND  ILLINOIS. 


BY 


HENRY   F.  BAKER, 


OF     CINCINNATI. 


CINCINNATI: 

PllIXTEl)  BY  C.  F.  BRADLEY  &  CO.,  It?  MAIN  STREET. 

1854. 


I'i 

■     4 


Entered  according  to  Act  of  Congress  in  the  year  1854, 

BY  HENRY  F.  BAKER, 

In  the  Clerk's  office  of  the  United  States  District  Court  for  the  District  of  Ohio. 


"^"^f\V,\T\g-\i.5. 


P  ART    II. 


BANKS  AND  BANKING, 


IN  THE  UNITED   STATES. 


In  some  former  remarks,  on  this  subject,  a  cursory  examina- 
tion of  the  different  systems  of  Banking  in  operation,  in  the 
United  States,  was  briefly  undertaken  ;  and  the  practical  merits 
and  demerits  of  each  system,  were  impartially  described.  The 
Banking  systems  of  the  older  States  had  been  frequently  dis- 
cussed, in  the  leading  periodicals  of  the  day,  and  by  sagacious 
and  well-informed,  practical  writers  of  pamphlets,  on  this  all-im- 
portant subject.  But  the  history  of  the  fiscal  operations  of  the 
more  recent  States,  has  been  but  imperfectly  commented  upon, 
and  this  will  now  be  attempted  in  the  following  pages. 

In  the  Eastern  States,  comparatively  little  was  known,  in 
regard  to  the  financial  condition  of  the  great  producing  States 
of  the  West ;  and  even  this  meagre  information  was  tinged  with 
prejudice,  naturally  created  by  the  injudicious  legislation,  which 
characterised  the  early  history  of  these  States.  Within  a  few 
years  however,  the  attention  of  the  Eastern  capitalists  has  been 
directed  to  the  various  railroad  projects,  which  have  absorbed 
so  large  an  amount  of  capital,  and  the  great  productiveness, 
and  annual  increase  of  the  trade  of  the  States  of  Ohio,  Ken- 
tucky, Indiana  and  Illinois  have  occupied  a  larger  share  of  pub- 
lic attention — discovering  their  wants,  and  their  resources,  and 
unfolding  much  that  it  was  for  the  interests  of  all  parties,  more 
clearly  to  understand  and  profit  by. 

We  propose  therefore  to  review  the  Banking  History  of  these 
four  important  States,  to  point  out  the  past  and  present  defects, 


n 


;V 


■  ■*. 


!.v 


■  A 


I 


1 1 


\'i 


iii 


I 


and  to  offer  such  suggestions,  as  the  examination  of  the  subject 
may  present.  Conscious,  that  we  shall  differ  in  opinion  from 
many,  who  are  now  in  active  positions  of  influence,  and  mone- 
tary power;  we  shall  however, none  the  less  freely  express  our 
opinions,  although  they  may  clash  with  those  which  direct  the 
fiscal  concerns  of  this  wide  field  of  labor  and  enterprise.  Claim- 
ing, as  we  do,  the  advantage  of  the  varied  experience  which 
an  active  life,  devoted  to  commercial  pursuits  and  monetary 
negotiations,  both  at  home  and  abroad,  have  amply  furnished, 
we  shall  write  independently  of  all  surrounding  considerations, 
and  suggest  no  measures,  excepting  those  which  the  public 
exigencies  require,  and  sound  policy  dictates.  And  whatever 
may  be  found  wrong  in  practice,  or  inconsistent  with  sound 
Banking  principles,  we  shall  freely  comment  upon,  however 
wide,  or  general  may  be  the  departure  from  the  system  we 
advocate. 

The  early  Banks,  established  in  Massachusetts  and  New 
York,  were  founded  upon  the  sound  principles  of  the  mother 
country,  and  for  nearly  fifty  years  no  innovations  were  intro- 
duced to  impair  the  public  confidence  in  their  security ;  although 
some  modifications  in  their  arrangement  were  adopted,  corres- 
ponding with  the  progressive  liberality  of  the  age,  and  the  ex- 
pansive spirit  which  foreign  commerce  naturally  engenders 
and  promotes.  These  Banks  were  few  in  number,  limited  in 
the  amounts  of  their  capitals,  and  managed  by  wealthy  and 
discreet  stockholders,  who  were  contented  with  the  legal  rate 
of  interest  for  the  use  of  their  money.  Their  capitals  were  not 
borrowed  ;  but  were  the  contributions  of  the  surplus  funds 
of  themselves  and  of  their  associates,  and  which  were  loaned  on 
paper,  known  to  represent  the  value  of  solid  property,  or  staple 
merchandize,  required  for  consumption  or  export.  Every  trans- 
action had  its  distinct  limit,  as  well  as  character,  and  the  entire 
capitals  of  these  Banks  were  converted  into  cash,  five  or  six 
times  annually.  By  this  system,  the  discounted  paper  of  the 
Banks  passed  through  a  constant  mutation,  and  was  conse- 
quently subject  to  frequent  scrutiny  and  realization.  As  the 
wealth  of  the  country  increased,  the  Banks  were  extended  in 
numbers,  localities,  and  capitals ;  sometimes  commensurate 
with,  but  more  frequently  in  advance  of  the  exigencies  of  the 
community. 


While  the  Banks  of  the  Eastern  States  were  of  slow  growth, 
and  were  founded  on  the  surplus  means,  which  commerce  and 
the  mechanic  arts  had  accumulated,  and  aided  by  the  frugality 
and  thrift  of  the  people,  in  the  Western  States,  it  appears  to( 
have  been  the  unfortunate,  and  ill-judged  policy  to  establish/ 
Banks  on  paper  security,  without  exacting  the  indispensable 
requisition  of  bona  fide  cash  capital,  paid  up  in  coin.  The 
consequence  was,  that  after  a  brief  existence,  most  of  them 
failed ;  and  the  dreary  catalogue  of  these  defunct  institutions ) 
furnishes  the  most  complete  illustration  of  the  folly  of  establish- 
ing Banks,  without  a  specie  capital.  The  great  principle,  that 
Bank  note  paper  must  be  convertible  into  specie,  or  it  is  nearly 
worthless,  was  wholly  lost  sight  of;  and  although  the  Corpora- 
tors were  possessed  of  broad  lands,  fields  of  corn  and  grain, 
cattle,  swine  and  live  stock,  of  every  description,  yet  all  these 
were  insufficient,  for  Banking  purposes,  so  long  as  Gold  and 
Silver  were  wanting.  Their  live  stock,  and  crops  of  corn  and 
grain,  were  marketable  articles ;  but  they  were  remote  from  the 
points,  where  they  could  be  converted  into  money,  since  the 
modern  facilities  of  railroads  were  then  only  in  the  dim  perspec- 
tive of  the  hope  of  the  most  sanguine.  In  the  earlier  period 
of  the  history  of  the  Western  States,  individuals  had  no  claims 
to  a  financial  credit,  which  a  business  man  in  the  Eastern  cities 
would  regard  as  available.  Possessed  of  fertile  lands,  which  a 
distant  period  would  render  valuable,  under  judicious  cultiva- 
tion, yet  without  avenues  to  these  remote  treasures,  they  were 
not  available  as  funds  within  six  or  twelve  months  to  the 
parties  east  of  the  AUeghanies,  with  whom  they  wished  to  make 
contracts.  True  as  this  was,  in  relation  to  individuals  ;  in  just 
the  same  degree,  was  it  true  in  regard  to  States.  Nothing  was 
permanently  established ;  the  population  had  neither  beconie 
fixed  in  locality  nor  intention — it  had  established  no  perma- 
nent credit,  by  even  a  few  years  of  punctual  payments  of  their 
obligations,  nor  had  the  States  any  settled  policy  of  legislation, 
by  which  their  future  course  could  be  determined.  Their  only 
income  was  derived  from  taxation  upon  the  lands,  which  were 
within  their  limits,  and  the  collection  of  even  this  scanty  reve- 
nue was  deferred  from  year  to  year,  so  that  no  certain  reliance 
could  be  placed  upon  its  immediate  receipt.  And  yet  upon  such 
uncertain  foundation,  some  of  these  new  States  issued  bonds 


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for  furnishing  Bank  Capital,  and  borrowed  money  on  disadvan- 
tageous terms  to  furnish  facilities  for  speculations  in  wild  lands. 
In  the  South  Western  States,  this  delusion  extended  to  a  ruin- 
ous amount,  not  less  than  forty  milions  of  dollars  having  been 
borrowed  for  this  purpose  in  Europe,  and  in  the  Eastern  States  ; 
the  disastrous  consequences  of  which  continue  to  the  present 
hour.  But  our  present  purpose  confines  us  to  the  Middle 
Western  States,  and  we  commence  with  the  most  populous — 
Ohio. 

The  history  of  Banking  in  this  prosperous  State,  furnishes 
an  apt  illustration  of  our  preceding  remark,  that  in  the  new 
States,  there  was  no  settled  policy  of  legislation,  by  which 
their  future  course  could  be  determined.  Shortly  after  the 
adoption  of  the  Constitution  of  Ohio,  and  its  admission  as  a 
sovereign  State  into  the  Union,  a  Bank  was  chartered  under 
the  name  of  the  Miami  Exporting  Company,  the  Bill  for  which 
was  passed  in  April,  1803.  Banking  operations  were  a  second- 
ary object  with  the  Company,  "  its  main  purpose  being  to  facili- 
tate trade,  then  suffering  under  great  depression,"  and  Rve 
years  elapsed,  before  the  first  regular  Bank  was  established  by 
the  charter  of  the  Bank  of  Marietta  in  1808.  During  the  same 
Session,  the  proposition  of  founding  a  State  Bank  was  con- 
sidered, and  reported  upon,  and  the  final  result  was  the  estab- 
lishment of  the  Bank  of  Chillicothe.  From  that  period,  char- 
ters were  granted  to  similar  institutions,  until  the  year  1816, 
when  the  great  Banking  Law  was  passed,  incorporating  twelve 
new  Banks,  extending  the  charters  of  the  old  ones,  and  making 
the  State  a  partner  in  the  profits  and  capital  of  the  institutions 
thus  created  and  renewed ;  without  any  advance,  on  its  part, 
of  any  funds  for  this  purpose.  The  new  Law  required,  that 
each  bank  was  to  set  apart,  one  share  in  twenty-five,  for  the 
State,  without  payment  therefor,  and  each  Bank,  whose  charter 
was  renewed,  was  to  create  for  the  State,  stock  in  the  same 
proportion.  Each  bank,  new  and  old,  was  required  annually 
to  set  apart,  out  of  its  profits,  a  sum,  which  at  the  expiration 
of  the  charter,  would  amount  to  one  twenty-fifth  of  the  whole 
stock,  which  was  to  belong  to  the  State :  and  the  dividends 
coming  to  the  State  were  to  be  invested,  and  re-invested,  until 
another  twenty-fifth  of  the  stock  was  State  property — this  last 
provision  was  subject  to  change,  by  future  legislators.    The 


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interest  of  the  State  was  continued  in  her  Banks,  until  1825, 
when  the  Law  was  amended,  to  commute  her  stock  into  a  tax 
of  two  per  cent,  upon  all  dividends  made  up  to  that  time,  and 
four  per  cent,  upon  all  made  thereafter. 

The  system  of  taxing  Banks,  commenced  in  Ohio,  in  the 
Legislature  of  1815,  by  a  levy  of  four  per  cent,  upon  their  divi- 
dends, but  the  law  was  virtually  nullified  the  next  year,  by  ex- 
empting all  Banks  from  its  operation,  which  accepted  the  con- 
ditions of  the  Act  of  1816. 

The  establishment  of  the  second  Bank  of  the  United  States 
in  1816,  and  the  location  of  one  of  its  branches  in  Cincinnati, 
in  January,  1817,  and  another  at  Chillicothe,  in  October,  occa- 
sioned the  well-known  controversy  between  the  State  of  Ohio 
and  the  Bank  of  the  United  States,  in  regard  to  the  arbitrary 
right  of  taxation ;  and  although  the  State  was  signally  defeated 
in  her  attempts  to  collect  an  unjust  and  illegal  tax,  yet  after  an 
interval  of  thirty  years,  she  is  again  waging  another  war  of  ex- 
termination, against  Banks  of  her  own  creation,  and  which  are 
the  sinews  of  the  prosperity  of  her  own  citizens.  The  imposition 
of  her  modern  tax  is  more  insidious  in  its  form  of  expression,  but 
none  the  less  oppressive  in  its  practical  operation.  With  the 
branches  of  the  United  States  Bank,  the  State  declared  open 
war,  and  passed  a  law  imposing  a  tax  of  fifty  thousand  dollars 
on  each  of  the  two  branches  at  Cincinnati  and  Chillicothe,  if 
they  continued  to  transact  business  after  the  15th  September, 
1819,  and  authorized  the  State  Auditor  to  issue  his  warrant  to 
collect  the  tax.  As  the  narrative  of  this  controversy  may  be 
new  to  some  of  those,  who  are  now  agitating  a  similar  ques- 
tion in  the  legislative  halls  at  Columbus,  w^e  briefly  sketch  it. 

The  law  imposing  this  tax  of  $100,000,  w^as  passed  with 
great  deliberation,  and  by  a  full  vote.  But  the  branches  of  the 
United  States  Bank  did  not  suspend  their  operations,  and  the 
Auditor  prepared  to  collect  the  money.  To  prevent  this,  the 
Bank  filed  a  Bill  in  Chancery  in  the  United  States  Circuit 
Court,  asking  for  an  Injunction  upon  the  Auditor  of  State,  to 
restrain  his  proceeding  in  the  matter  of  collection.  The  Audi- 
tor, by  legal  advice,  refused  to  appear,  on  the  day  named  in 
the  writ,  and  of  course  the  Court  allowed  the  Injunction ;  but 
required  bonds  of  the  Bank,  to  the  extent  of  $100,000,  which 
were  given.     As  the  day  for  collection  approached,  the  Bank 


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sent  an  a^ent  to  Columbus,  who  served  upon  the  Auditor,  a 
copy  of  the  petition  for  Injunction,  and  a  subpoena  to  appear 
before  the  Court  at  a  subsequent  date ;  but  he  had  no  copy  of 
the  writ  of  Injunction,  which  had  been  allowed.     This  petition 
and  subpcEna,  the  Auditor  enclosed  to  the  Secretary  of  State, 
who  was  then  at  Chillicothe,  together  with  the  warrant,  for 
levying  the  tax,  requesting  the  Secretary  to  take  legal  advice ; 
and  if  the  papers  did  not  amount  to  an  injunction,  to  have  the 
warrant  executed ;  but  if  they  did,  to  return  it.     The  counsel 
advised,  that  the  papers  did  not  amount  to  an  injunction,  and 
therefore  the  State  writ  was  given  to  the  Sheriff,  with  instruc- 
tions to  enter  the  Banking  House,  and  demand  payment  of  the 
tax,  and  upon  refusal  thereof,  to  enter  the  vault  and  levy  the 
amount  required.     The  officer  was  directed  to  use  no  violence, 
but  if  he  was  opposed  by  force,  to  go  at  once  before  a  proper 
Magistrate,  and  depose  to  the  fact.     Accordingly  the  officer 
taking  with  him  competent  assistants,  went  to  the  Banking 
House  and  first  securing  access  to  the  vaults,  demanded  the 
tax ;  payment  was  of  course  refused,  and  notice  given  of  the 
Injunction,  which  had  been  granted  :  but  the  officer,  disregard- 
ing this  notice,  entered  the  vault  of  the  Bank,  and  seized,  in 
Gold  and  Silver  and  Bank  Notes,  ninety-eight  thousand  dol- 
lar, which  he  paid  over  to  the  Treasurer  of  State.     The  officer* 
concerned  in  this  transaction,  were  very  properly  arrested,  and 
imprisoned  by  the  United  States  Circuit  Court,  for  a  contempt 
of  the  Injunction,  granted  by  them,  and  the  money  taken  was 
restored  to  the  Bank.     The  decision  of  the  Circuit  Court  finally 
came  before  the  Supreme  Court  at  Washington  in  1824,  and 
was  there  affirmed ;  whereupon  the  State  of  Ohio  submitted. 
During  the  pendency  of  this  suit  however,  the  State  Legislature 
passed  four  Resolutions ;  in  consequence  of  which,  the  Bank 
was  for  a  time  deprived  of  the  aid  of  the  State  Laws,  in  the 
collection  of  its  debts,  and  the  usual  protection  of  its  legal 
rights.     An  effort  was  also  made  to  effect  a  change  in  the 
Federal  Constitution  with  reference  to  taking  this   particular 
case  out  of  the  jurisdiction  of  the  United  States  tribunals,  but 
fortunately  the  State  of  Ohio  failed  to  accomplish  its  object,  in 
this  instance. 

After  1825,  no  change  was  made  in  the  Banking  Laws  of 
the  State,  until  1831,  when  the  Bank  Tax  was  increased  from 


0 


four  to  five  per  cent.  Subsequently  two  important  Acts  were 
passed  by  the  Legislature ;  one  in  1839,  appointing  Bank  Com- 
missioners, to  examine  the  various  Institutions,  and  report  upon 
their  condition.  This  inquisition  was  resisted  by  some  of  the 
Banks,  and  much  controversy  ensued,  both  in  and  out  of  the 
General  Assembly.  The  other  measure  was  the  adoption,  in 
1845,  of  a  new  system  of  Banking,  establishing  a  State  Bank, 
with  branches,  on  the  safety-fund  system,  (the  State,  however, 
owning  no  part  thereof,)  and  an  Independent  Bank  system,  re- 
quiring State  Stocks  to  be  deposited  with  the  State  Treasurer, 
for  the  full  amount  of  Bank  issues. 

In  March,  1851,  the  General  Assembly  passed  an  Act,  au- 
thorizing Free  Bankings  limiting  the  amounts  to  a  minimum  of 
$25,000,  and  a  maximum  of  $500,000,  and  requiring  the 
amount  of  notes  issued  to  be  secured  for  the  full  sum,  by  the 
deposit  of  the  stock  of  the  United  States,  or  the  State  of  Ohio ; 
as  in  New  York,  and  other  Free  Banking  States ;  but  in  June, 
1851,  the  new  Constitution  of  Ohio  was  submitted  to  the  people, 
and  its  adoption  effectually  crushed  any  further  Bank  associa- 
tions, by  the  following  Article  : 

"  No  act  of  the  General  Assembly,  authorizing  Associations, 
with  Banking  powers,  shall  take  effect,  until  it  shall  be  sub- 
mitted to  the  people  at  the  general  election  next  succeeding 
the  passage  thereof,  and  be  approved  by  a  majority  of  all  the 
electors  voting  at  such  election.'* 

In  1852,  the  General  Assembly  passed  the  celebrated  Tax 
Law,  and  thus  gave  the  finishing  stroke  to  fifty  years  of  the 
most  vascillating  measures  on  the  subject,  which  can  be  found 
on  the  statute  books  of  any  State  in  the  Union.  Commencing 
in  1815,  to  levy  an  equitable  tax  upon  Banking  institutions, 
the  Legislative  appetite  grew  more  voracious  with  the  taste  of 
blood;  and  after  the  prey  of  the  United  States  Bank  was 
wrested  from  the  fancied  grasp  of  the  General  Assembly  in 
1824,  they  increased  the  Bank  tax  in  1831,  and  finally  satiated 
their  relentless  rapacity  in  1852.  Now,  we  suppose,  that  there 
are  three  propositions,  which  every  business  man  will  admit : 

First,  that  Bank  Capital  is  a  great  desideratum  in  a  newly 
settled  country,  whether  town  or  State  ; 

Secondly,  that  every  encouragement  should  be  given  by 
Legislative  enactments,  for  its  introduction  and  protection ;  and, 
3 


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10 

Thirdly,  that  the  older  States  had  ascertained  by  a  long  ex- 
perience, to  what  extent  this  Capital  could  be  legitimately  and 
safely  taxed. 

Admitting  these  premises,  will  any  one  contend,  that  the 
State  of  Ohio  has  acted  wisely  in  her  late  measures  of  legisla- 
tion ?  Has  not  the  partizan  spirit  of  these  measures  been  ad- 
verse to  the  introduction  of  foreign  capital :  and  while  at  one 
period  the  State  fostered  a  Banking  Capital  of  more  than  ten 
millions  of  dollars,  is  she  not  now  striving  to  extinguish  it  alto- 
gether, by  the  most  oppressive  exactions,  at  a  moment  when 
her  vital  interests  require  Banking  facilities  to  the  extent  of  at 
least  twenty -five  millions?  We  need  but  to  cast  a  single 
glance  at  the  statistical  facts,  which  the  Railroad  Record  so 
clearly  presents  to  us  in  its  columns,  to  perceive  the  real  wants 
of  Ohio.  Here  is  a  State,  possessing  a  territory  and  property 
valued  at  eight  hundred  millions  of  dollars,  with  the  means  of 
feeding  double  the  number  of  her  own  population,  and  the 
capacity  by  increased  cultivation,  with  improved  means,  to  fur- 
nish ample  support  for  five  millions  more. 

"  Without  at  all  infringing,"  says  the  Record,  "  on  a  proper 
proportion  of  woods,  meadows,  pasture  and  fallow,  Ohio  might 
cultivate  12,000,000  of  acres,  in  arable  ground.  At  our  present 
averages,  this  would  give  us  80,000,000  of  bushels  of  wheat  and 
160,000,000  bushels  of  corn;  full  enough  for  the  support  of 
twelve  millions  of  people."  And  yet  such  a  prosperous  and 
prolific  State  as  this,  is  to  be  deprived  of  all  Banking  facilities, 
and  be  dependent  on  the  funds  of  agents  and  factors  in  other 
States,  for  the  means  of  bringing  forward  her  products  to  a 
ready  and  profitable  market,  and  lose  the  percentage,  which 
such  extraneous  and  needless  services  require  for  compensa-^ 
tion. 

We  apprehend,  that  there  are  but  few  of  the  Solons  of 
Columbus,  who  rightly  estimate,  or  are  willing  to  compute,  the 
amount  of  this  "  compensation,"  paid  in  the  shape  of  commis- 
sions, by  the  interests  engaged  in  the  pork  trade  alone.  From 
the  city  of  Cincinnati  during  the  last  season,  there  was  ex- 
ported of  the  products  of  the  hog,  in  pork,  bacon,  lard,  and  lard- 
oil,  the  ascertained  value  of  $8,477,431,  exclusive  of  the  value 
of  the  bristles,  grease  and  other  materials,  derived  from  this 
traffic.     A  reference  to  those  most  largely  interested  in  the  busi- 


11 


ness,  discloses  the  startling  fact,  that  the  additional  cost  of 
money  to  them,  in  consequence  of  a  deficiency  of  Banking 
capital  in  this  State,  is  not  less  than  five  per  cent,  on  the 
amount  of  these  operations.  This  would  show  an  actual  sub- 
sidy levied  on  this  branch  of  business  alone,  of  about  $424,000 
per  annum.  But  this  is  only  a  part  of  the  matter.  If  we  take 
into  account,  the  value  of  the  manufactured  articles,  exported 
from  Cincinnati  only;  the  flour,  whiskey,  beef,  tallow,  soap, 
linseed-oil,  butter,  cheese,  iron,  white-lead,  &c.,  we  have  another 
aggregate  of  $7,688,553,  on  which  there  is  another  percentage 
of  at  least  five  per  cent,  more  paid,  making  a  further  sum  of 
$384,400,  which  together  with  the  former  amount,  exhibits  a 
total  of  $808,400 — a  large  percentage  of  which  is  lost  to  the 
State,  by  the  improvident  legislation  in  regard  to  Bank  capital. 
But,  large  as  this  sum  is,  it  is  but  a  modicum  of  the  entire 
amount.  The  value  of  the  imports  of  Cincinnati,  the  last  sea- 
son, were  valued  at  $51,239,644,  and  the  exports  at  $36,266,108, 
being  more  than  eighty-seven  and  a  half  millions  of  dollars, 
and  to  facilitate  these  heavy  operations,  Cincinnati  had  a  Bank- 
ing capital  of  only  1,205,526,  and,  within  the  whole  State,  less 
than  $6,500,000.  Well  may  the  community  exclaim,  **  we  are 
short  of  a  circulating  medium." 

Contrast  the  policy  of  Massachusetts  and  Ohio.  The  former 
imposes  a  tax  of  one  per  cent,  on  her  Banking  capital,  and  the 
amount  invested  in  it  steadily  advances  with  the  increasing 
prosperity  of  the  State.  But  Ohio  pursues  an  opposite  course, 
and  levies  an  exorbitant  and  unconstitutional  tax,  and  cripples 
the  trade  of  her  own  citizens,  but  enables  the  residents  of  other 
States  to  profit  by  her  mischievous  measures.  Ohio  takes  a 
retrograde  step,  in  the  financial  movements  of  the  present  day, 
and  allows  the  States  of  Kentucky,  Indiana,  Illinois,  Virginia, 
and  Tennessee,  and  finally  the  New  England  States,  to  supply 
her  with  currency,  who  derive  a  large  income  therefrom. 

How  an  enterprising,  energetic  and  intelligent  community, 
like  the  agriculturists,  traders,  and  Bankers  of  Ohio,  can  sub- 
mit to  such  iniquitous  laws,  as  those  imposed  by  the  crude, 
misguided  and  willful  Legislators,  who  have  of  late  years  com- 
posed the  majority  at  Columbus,  and  represent  the  collective 
wisdom  of  the  people,  surpasses  our  comprehension.  The  peo- 
ple of  the  State  have  recently  adopted  a  Constitution,  which 


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expressly  stipulates  that  no  one  interest  shall  bear  any  higher 
rate  of  taxation  than  another ;  but  that  the  burden  shall  fall 
equally  on  all  descriptions  of  property  in  the  State.  If  then,  a 
law  has  been  passed,  which  will  allow,  even  by  a  forced  con- 
struction, the  levy  of  a  tax  on  any  one  interest,  double  or  treb- 
ble  that  upon  any  other  property  in  this  State,  is  not  the  Con- 
stitution plainly  violated,  and  the  fell  purpose  of  the  malicious 
originators  of  such  a  law  disclosed,  when  they  find  it  neces- 
sary to  resort  to  "  Crowbars  "  to  enforce  it?  Even  in  the  war- 
fare against  the  United  States  Bank,  previously  narrated,  when 
the  State  assumed  that  her  rights  had  been  invaded,  and  levied 
a  tax  of  $100,000  on  the  two  branches  of  Cincinnati  and  Chil- 
licothe,  she  directed  her  oflicer  to  use  no  violence  in  the  collec- 
tion of  the  tax  :  "  but  if  he  was  opposed  by  force,  to  go  before 
a  magistrate,  and  depose  to  the  fact."  But  under  the  present 
tax  law,  the  officer  is  empowered  to  use  "  Crowbars,"  to  break 
open  any  lock,  vault  or  chest,  and  to  seize  upon  any  amount 
which  he  can  find,  for  the  full  satisfaction  of  his  demand ;  and 
this  outrage  is  authorized  to  be  perpetrated  upon  the  property 
of  her  own  citizens,  transacting  business  under  her  own  laws, 
and  in  direct  opposition  to  the  Constitution  of  the  United  States, 
as  well  as  that  of  the  State  of  Ohio.  Fortunately,  however,  for 
the  people,  there  is  now,  as  there  was  in  1824,  a  restraining 
power,  in  the  Supreme  Court  of  the  United  States,  which  can 
overrule  the  decisions  of  partizan  Judges,  and  sustain  the  rights 
of  the  oppressed. 

The  difficulties  attending  the  present  system  of  Banking  in 
Ohio  arise  from  various  causes,  but  chiefly  from  the  great  want 
of  Bank  capital.  For  so  large,  populous,  and  productive  a 
State,  the  amount  is  utterly  insignificant,  and  considering  the 
large  sums  necessary  to  convert  the  annual  crops  into  money, 
we  may  well  be  surprised,  not  that  it  is  done  with  difficulty,  but 
that  it  can  be  done  at  all.  But  what  improvident  legislation 
has  discouraged,  individual  sagacity  and  cupidity  have  partially 
supplied.  Hence  the  large  business  of  the  commercial  metro- 
polis of  Ohio  is  transacted  by  means  of  the  facilities,  which  pri- 
vate Bankers  afibrd,  whose  rates  of  accommodation  vary  from 
ten  to  twenty  per  cent,  per  annum,  while  the  incorporated 
Banks  are  limited  to  six  per  cent.  As  a  class,  the  private 
Banking  establishments  are  conducted  by  men  of  high  integrity 


13 


and  character ;  but  when  a  lucrative  business  can  be  legally 
transacted  by  individuals,  which  cannot  be  done  in  a  corporate 
capacity,  it  is  not  a  matter  of  surprise,  that  the  capital  should 
flow  into  its  most  productive  channel,  and  partially  escape  the 
restrictions  of  fickle  and  arbitrary  legislation. 

In  the  next  place,  there  is  no  uniform  system  of  Banking  in 
the  State.  There  are  in  Ohio,  at  the  present  period,  four  distinct 
classes  of  Banks,  viz  :  the  old  banks,  incorporated  prior  to  1845, 
having  a  capital  of  about  $1,550,000;  the  branches  of  the  State 
Bank,  created  in  1845,  and  having  a  capital  of  $4,100,000; 
the  Independent  Banks,  under  the  same  Act,  having  a  capital 
of  $720,000 ;  and  the  Free  Banks,  authorized  by  the  Act  of 
1851,  and  having  a  capital  of  about  $695,000 ;  all  under  differ- 
ent rules  and  regulations,  and  having  no  concert  of  action  with 
each  other,[nor  unity  of  interests.  They  are  all  amenable,  it  is 
true,  to  the  authorities  at  Colnmbus,  so  far  as  to  be  required  to 
furnish  a  quarterly  report  of  their  condition,  and  are  subject  to 
an  annual  examination ;  but  of  what  value  are  these  ?  One  of 
the  first  named  class,  with  a  capital  of  $200,000,  and  a  circula- 
tion, according  to  the  August  report  of  $377,682,  against  which 
it  held  $71,000  in  specie,  and  $350,000  in  the  hands  of  its  prin- 
cipal proprietor,  in  New  York  (now  bankrupt)  has  recently 
failed.  **  This  Bank,  (the  Bank  of  Massillon)  was  chartered  in 
1835,  with  twenty  years  to  run,  simultaneously  with  the  Woos- 
ter,  Clinton  and  Circleville  Banks.  It  belonged  neither  to  the 
State  Banks,  the  Independents,  nor  the  Free  Banks,  but  was  a 
sort  of  Freebooter,  with  license  to  sink  or  swim,  as  it  found 
most  advantageous."  The  Cleveland  and  Pittsburgh  Rail- 
road borrowed  $200,000  of  its  notes  of  circulation,  and  the  Chi- 
cago and  Mississippi  Railroad,  $200,000  more,  and  these  sums 
were  probably  scattered  broad  cast  among  the  Western  farmers 
and  traders,  who  had  a  large  proportion  of  it  in  their  posses- 
sion. How  far  the  principal  proprietor  in  New  York  may  be 
able  to  refund  the  $350,000  in  his  possession,  will  determine  the 
ultimate  value  of  these  notes  of  circulation.  During  the  last 
summer,  another  class  of  these  Banks  has  disturbed  the  finan- 
cial state  of  affairs,  by  the  stolen  and  counterfeited  notes  of  five 
of  their  number,  and  consequently  the  bills  of  thirteen  Free 
Banks,  amounting  to  a  million  of  dollars,  were  rejected  by  a 
suspecting  community  and  were  consequently  withdrawn  from 


<■■  ■ 

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14 

circulation,  thereby  encouraging  the  Banks  of  Tennessee,  to 
make  an  effort  to  supply  the  vacuum.  These  Tennessee  bills 
had  for  a  long  time  been  at  a  discount  of  one  per  cent.,  but 
an  arrangement  was  temporarily  made,  to  raise  them  to  a  par 
value,  and  when  a  sufficient  amount  was  intermixed  with  our 
currency,  the  arrangement  ceased,  and  the  community  were 
compelled  to  sustain  the  loss. 

Every  one  cognizant  of  the  currency  of  Cincinnati,  is  famil- 
iar with  the  fact,  that  a  large  proportion  of  it  consists  of  the 
Bank  notes  of  Kentucky,  Indiana,  Illinois  and  Virginia,  and 
that  in  the  winter  season,  large  amounts  of  Eastern  bills  enter 
into  the  circulation.  Other  States  supply  our  currency,  and 
reap  the  profit.  They  contract  and  expand  the  circulation,  to 
suit  their  own  interests,  not  ours.  This  is  the  natural  result  of 
Ohio  legislation  in  relation  to  Banks. 

We  are  certainly  under  great  obligation  to  the  Banks  of 
other  States,  for  their  supply  of  currency,  on  excellent  paper, 
and  fine  engravings ;  but  we  should  be  better  satisfied  to  see 
Ohio  itself  derive  the  benefit  of  this  extended  circulation,  by 
the  introduction  of  its  increasing  wealth,  into  this  legitimate 
and  valuable  business,  and  encouraged  by  the  fostering  care  of 
legislative  protection.  But  while  the  present  councils  prevail, 
it  is  hopeless  to  expect  that  capitalists  will  place  their  funds 
under  the  arbitrary  control  of  an  Ohio  Legislature,  when  the 
neighboring  State  of  Indiana  by  a  more  liberal  policy,  will  fur- 
nish them  with  every  facility  to  conduct  their  financial  opera- 
tions. 

A  law  was  passed,  in  Ohio,  in  1848,  prohibiting  "the  circu- 
lation of  any  notes,  or  bills,  except  the  notes  or  bills  of  the 
Banks  of  the  State,  issued  according  to  Law,"  under  a  penalty 
of  one-half  of  the  amount  for  the  use  of  the  State.  We  know 
of  but  one  prosecution,  under  this  Act,  and  that  was  against  a 
broker,  who  was  foisting  upon  the  community,  some  worthless 
"shin-plasters."  The  trading  community  and  the  Banks  treat 
the  law  with  contempt,  and  manage  their  financial  affairs  in 
conformity  with  their  own  notions  of  expediency,  instead  of 
complying  with  the  absurd  requisitions  of  the  Legislature  of 
1848. 

By  the  quarterly  returns  of  November  last,  the  whole  amount 
of  the  circulation  of  the  Banks  in  Ohio,  was  $11,000,000,  of 


mmmt 


'sas 


15 


which  the  five  Banks  in  Cincinnati  had  only  $353,000,  and  one- 
third  of  even  this  paltry  amount  is  now  withdrawn,  by  the  clos- 
ing of  the  Lafayette  Bank.  The  other  cities  and  towns  in  the 
State— Cleveland,  Columbus,  Sandusky,  Dayton,  &c.— require  a 
large  proportion  oi  their  issues,  for  their  own  use,  and  there  is 
left  for  the  commercial  metropolis,  a  totally  inadequate  supply 
of  currency  to  meet  the  engagements  of  a  single  day's  active 
business.  Why  then  should  the  trading  community  submit  to 
these  useless  restrictions  in  relation  to  the  currency,  which  this 
law  of  1848  imposes  ?  Necessity,  however,  fortunately  com- 
pels them  to  treat  it  with  perfect  derision. 

There  is  another  defect  in  the  Ohio  system  of  Banking,  which 
is  not,  however,  the  result  of  her  legislation,  and  this  is  the 
practice  of  keeping  Bank  Accounts  in  "currency,"  as  it  is 
termed,  instead  of  par  funds.  The  Law,  establishing  "the 
State  Bank  of  Ohio,  and  other  Banking  Companies,"  requires, 
that  all  notes,  issued  by  them,  shall  be  payable  at  the  branch, 
by  which  they  are  issued,  in  gold  and  silver  coin,  or  either,  at 
the  option  of  the  branch,  on  demand.  Each  branch  is  propor- 
tionably  liable,  for  the  redemption  of  these  bills,  and  the  Board 
of  Control  have  the  supervision  of  the  distribution  of  their  seve- 
ral quotas  of  circulation.  Theoretically,  then,  these  notes  are 
par  funds,  but  practically  they  are  not  so,  since  the  bills  of  the 
nearest  branches  will  not  command  the  specie  in  Cincinnati,  at 

par  value. 

In  New  England,  the  Bank  notes  of  six  States,  whose  aggre- 
gate of  circulation  exceeds  forty  millions  of  dollars,  are  con- 
vertible into  specie,  at  the  Suffolk  Bank  in  Boston,  at  par. 
This  system  was  established  there  in  1824,  and  has  conse- 
quently been  in  operation  there  nearly  thirty  years,  and  the 
practical  results  are,  that  the  currency  of  the  New  England 
States  commands  the  specie  even  in  the  City  of  New  York,  at 
the  trifling  discount  of  one-quarter  per  cent. 

Why  should  not  a  similar  system  be  adopted  in  Ohio,  and 
the  bills  of  all  her  own  Banks  be  redeemed  at  the  central  point 
of  business— Cincinnati— at  par  ?  With  such  a  system,  once 
introduced,  a  nucleus  would  be  formed  for  more  extended  ope- 
rations, similar  arrangements  might  be  made  in  the  adjacent 
States,  and  the  currency  of  Indiana,  Illinois,  Kentucky  and  Vir- 
ginia would  be  convertible  into  gold,  on  as  favorable  terms  as 


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the  New  England  notes  are  now  received  in  New  York.  Leav- 
ing, however,  the  Ohio  system  of  Banking  for  the  present,  let 
us  now  examine  that  of  the  adjoining  State  of  Indiana. 

This  State  was  admitted  into  the  Union  in  1816,  but  not- 
withstanding its  system  of  internal  improvements,  which  was 
commenced  in  1832,  with  the  construction  of  the  Wabash  and 
Erie  Canal,  375  miles  in  length  in  Indiana,  there  were  few  in- 
corporated Banks,  until  1834,  when  the  "State  Bank  of  In- 
diana'' was  established,  with  a  capital  of  $1,600,000,  divided 
among  ten  branches. 

This  charter  allotted  to  each  branch  $160,000,  and  pro- 
vided, that  all  should  be  mutually  liable  for  the  debts  of  each 
other,  but  should  divide  their  own  profits.  Each  share  was 
subject  to  a  tax  of  12^  cents  per  share,  payable  out  of  the  divi- 
dends, for  educational  purposes,  in  lieu  of  all  other  taxes  :  but 
in  case  of  an  ad  valorem  system  of  taxation  in  the  State,  then 
the  stock  was  liable,  the  same  as  other  capital,  not  exceeding, 
however,  one  per  cent,  altogether.  No  note  under  $5  was 
allowed  to  be  issued,  and  the  Legislature  reserved  the  right  to 
restrict  it  to  $10  within  ten  years.  The  capital  of  any  branch 
might  be  increased  by  and  with  the  assent  and  concurrence  of 
the  Legislature  and  the  Directors  of  the  State  Bank.  The  Di- 
rectors of  the  parent  Bank  were  to  have  charge  of  the  plates, 
and  Bank  paper  of  the  branches,  and  were  empowered  to  de- 
liver to  them,  an  amount  of  such  paper,  not  exceeding  twice 
the  amount  of  the  stock  subscribed  for.  One  half  of  the  capital 
was  subscribed  for  and  owned  by  the  State,  for  which  they  au- 
thorized bonds  to  be  issued  to  the  amount  of  $1,300,000  at  five 
per  cent.,  to  realize  the  funds  to  pay  for  their  half  of  the  stock ; 
the  remaining  half,  was  to  be  subscribed  for,  and  owned  by  in- 
dividuals, and  corporations.  The  debts  of  each  branch  were 
limited  to  double  the  amount  of  capital  paid  in,  exclusive  of 
deposits. 

In  January,  1836,  an  amendment  was  passed  by  the  Legis- 
lature, and  the  discounts  were  allowed  to  be  extended  to  twice 
and  a  half  the  amount  of  the  capital  paid  in ;  and  the  branches 
were  allowed  to  increase  their  capitals,  to  $250,000  each,  but 
none  of  them  have  availed  themselves  of  this  privilege,  and 
there  are  now  but  three,  which  have  over  $200,000. 

In  February,  1841,  the  branches  were  authorized  to  issue 


i! 


17 

notes  of  a  less  denomination  than  $5,  not  exceeding  in  the  ag- 
gregate one  million  of  dollars,  on  the  payment  of  one  per  cent, 
for  the  privilege  ;  and  of  its  circulation  of  $3,680,000,  about  one- 
sixth  part  is  in  small  notes,  liberally  scattered  throughout  the 
State  of  Ohio. 

After  the  resumption  of  specie  payments  by  the  Banks  in 
May,  1838,  out  of  the  959  Banks,  then  in  existence,  343  again 
wholly  suspended  in  October,  1839,  and  62  partially  so,  of 
which  latter  number  were  those  of  the  State  Bank  of  Indiana, 
and  which  did  not  again  resume  the  payment  of  specie,  until 
October,  1841,  when  the  branches  held  $1,127,518  to  meet  a 
circulation  of  $2,960,414  and  deposits  amounting  to  $317,890 
only.  Since  that  period,  the  Bank  has  maintained  its  credit 
inviolate,  and  under  able  management,  has  successfully  effected 
a  regular  reduction  of  its  suspended  debt,  which  had  rapidly 
accumulated  during  the  inflation  of  business  in  former  years, 
without  ruinous  sacrifices  to  the  debtors  of  the  Bank.  In  look- 
ing over  its  regular  returns  for  the  last  ten  years,  its  present 
high  credit,  and  the  names  of  the  efficient  officers,  who  have 
charge  of  its  branches,  it  is  a  matter  of  deep  regret,  that  so 
popular  and  valuable  an  institution  is  so  soon  to  be  closed  by 
the  expiration  of  its  charter,  and  that  the  new  Constitution  pre- 
cludes its  renewal  on  its  present  basis. 

But  although  the  experiment  has  resulted  so  favorably  in 
Indiana,  it  was  nevertheless  a  hazardous  one  to  undertake  ; 
and  had  it  not  been  for  the  general  suspension  of  the  Banks  in 
1837,  and  the  continuance  of  the  paper  system,  south  and  west 
of  Philadelphia,  until  1842,  the  result  might  have  been  widely 
different.  In  May,  1837,  the  capital  of  the  Bank  was  b;3t 
$1,846,921,  but  its  loans  and  discounts  amounted  to  $4,208,956. 
Its  specie  was  but  $1,196,187  to  meet  $2,516,790  of  circulation, 
and  $1,898,061  of  deposits.  If,  therefore,  it  had  then  been 
pressed  for  the  payment  of  its  notes,  the  Bank  would  have  been 
compelled  to  suspend  payment,  or  gone  into  liquidation-  Of 
course  it  would  have  made  many  bankrupt,  and  reduced  others 
from  affluence  to  poverty.  As  it  was,  the  efforts  to  avert  the 
general  calamity  only  protracted  the  struggle,  and  the  catas- 
trophe was  the  more  fatal  to  individuals.  If  specie-payments 
had  been  persisted  in  by  all  the  Banks,  prices  would  have 
fallen  at  once  to  their  specie  value,  instead  of  struggling  on 
3 


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18 

from  bad  to  worse  for  three  years  in  the  vain  hope  of  relief, 
and  finally  sinking  under  the  accuniulated  pressure.  Then, 
the  crisis  would  have  been  over  at  once,  and  trade  having 
reached  its  lowest  point,  would  speedily  have  been  reorganized 
on  a  new  basis.  With  the  elastic  spirit  of  our  countrymen, 
new  fortunes  would  have  been  amassed,  upon  the  ruins  of  those 
which  had  fallen,  and  the  vain  efforts  to  sustain  a  tottering 
fabric  would  have  been  more  wisely  directed  to  a  new  struc- 
ture, upon  a  more  enduring  foundation.  If  we  recur  to  the 
origin  of  this  Bank,  we  see  at  once,  that  it  was  founded  upon 
false  principles,  and  that  one-half  of  its  capital  was  fictitious, 
for  such  we  must  term  the  State  Bonds  for  $1,300,000,  to  pro- 
vide for  its  $800,000  of  stock,  and  upon  which  the  Bank  was 
authorized  to  issue  $1,600,000  of  its  notes. 

Besides,  the  Act  itself  was  unconstitutional.  In  the  first 
Article  of  the  Constitution  of  the  United  States,  there  is  an  ex- 
plicit prohibition  of  the  authority  of  any  single  State  to  "  emit 
bills  of  credit,"  and  the  great  expounder  of  that  instrument,  in 
his  speech  on  the  renewal  of  the  charter  of  the  United  States 
Bank,  in  the  Senate,  on  the  25th  May,  1832,  made  use  of  these 
words  :  "  Congress  can  alone  coin  mone}' ;  Congress  can  alone 
fix  the  value  of  foreign  coins.  No  State  can  coin  money ;  no 
State  (nor  even  Congress  itself)  can  make  anything  a  tender, 
but  Gold  and  Silver.  No  State  can  emit  bills  of  credit.  But, 
notwithstanding  this  apparent  purpose  in  the  Constitution,  the 
truth  is,  that  the  currency  of  the  country  is  now,  to  a  very  great 
extent,  practically  and  effectually  under  the  control  of  the  seve- 
ral State  governments  :  if  it  be  not  more  correct  to  say,  that  it 
is  under  the  control  of  the  Banking  institutions  created  by  the 
States  ;  for  the  States  seem  first  to  have  taken  possession  of  the 
power,  and  then  to  have  delegated  it."  And  again,  on  the  28th 
May,  in  the  same  place,  he  said ;  "  It  is  further  to  be  observed, 
that  the  States  cannot  issue  bills  of  credit ;  not  that  they  cannot 
make  them  a  legal  tender,  but  that  they  cannot  issue  them  at  all. 
Is  not  this  a  clear  indication  of  the  intent  of  the  Constitution,  to 
restrain  the  States,  as  well  from  establishing  a  paper  circula- 
tion, as  from  interfering  with  the  metalic  circulation?  Banks 
have  been  granted  by  States,  with  no  capital  whatever,  their 
notes  being  put  into  circulation,  simply  on  the  credit  of  the 
State,  or  the  State  Law.     What  are  the  issues  of  such  Banks, 


19 


but  bills  of  credit,  issued  by  the  State.  I  confess,  Mr.  Presi- 
dent, the  more  I  reflect  on  this  subject,  the  more  clearly  does 
my  mind  approach  the  conclusion,  that  the  creation  of  Slate 
Banks,  for  the  purpose,  and  with  the  power  of  circulating  paper* 
is  not  consistent  with  the  grants,  and  prohibitions  of  the  Con- 
stitution." Such  were  the  opinions  of  Daniel  Webster  in  1832, 
and  they  may  be  urged  with  equal  force  now.  In  direct  oppo- 
sition to  these  views,  Indiana  issued  her  Bonds  for  $1,300,000, 
to  provide  for  her  quota  of  Stock  in  the  Bank  subscribed  for  by 
her,  $800,000,  and  has  for  nearly  twenty  years,  been  partici- 
pating in  the  profits  of  the  institution,  although  she  has  never 
contributed  in  cash  one  dollar  of  the  capital.  While  the  ^\^ 
per  cent,  bonds  of  the  State,  amounting  to  upwards  of  twelve 
millions  of  dollars,  were  nearly  worthless,  the  interest  thereon 
unpaid,  and  in  1842,  sold  at  upwards  of  eighty  per  cent,  dis- 
count, and  in  1843,  at  seventy- two  per  cent. ;  yet  the  Bank  has 
paid  the  specified  interest  of  five  per  cent,  on  the  $1,300,000^ 
and  in  winding  up  its  affairs,  will  receive  an  ample  bonus  for 
its  services,  by  the  full  payment  of  principle  and  interest  on  the 
bonds  which  she  holds,  whatever  the  amount  may  be. 

On  the  1st  November,  1851,  the  new  Constitution  of  Indiana 
went  into  operation,  and  on  the  28th  May  succeeding,  a  Gene- 
ral Banking  Law  was  passed,  in  conformity  thereto.  This 
Constitution  prohibits  the  incorporation  of  any  monied  institu- 
tion, for  the  purpose  of  issuing  bills  of  credit,  or  bills  payable 
to  order,  or  bearer,  except  under  a  general  Banking  law,  and 
details  the  privileges  and  restrictions  which  are  to  be  embodied 
in  the  law.  Accordingly,  "  the  Act  to  authorize  and  regulate 
the  business  of  Banking  "  provides,  that  whenever  any  person, 
or  association,  shall  deposit  in  the  hands  of  the  Auditor,  in 
trust,  any  of  the  Stocks  of  the  United  States,  or  of  any  of  the 
individual  SStates  which  pay  interest  semi-annually,  and  an 
amount  which  produces  six  per  cent,  per  annum,  or  Indiana 
5  per  cent.  Stock,  or  double  the  amount  of  the  2^  per  cent. 
Stock,  (the  Indiana  State  Stocks  chargeable  upon  the  Canal 
being  excluded,)  such  person,  or  association,  may  receive  from 
the  Auditor  an  equal  amount  in  Bank  notes,  to  be  used  for 
Banking  purposes,  of  the  usual  denominations,  of  which  one- 
fourth  part  may  be  under  five  dollars.  The  parties  then  pos- 
sess the  usual  Free  Banking  powers,  limited  to  twenty  years 


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20 

duration  of  existence,  requited  to  pay  specie  for  their  bills,  on 
presentation,  liable  in  their  individual  capacity  for  an  equal 
amount  of  their  stock,  in  payment  of  all  debts  incurred,  the 
capital  to  be  at  least  $50,000,  which  may  however  be  enlarged 
indefinitely,  but ''  no  Bank  shall  at  any  time,  for  the  space  of 
twenty  days,  have  on  hand,  at  their  place  of  business,  less  than 
twelve  and  a  half  per  cent,  in  specie,  of  the  bills  or  notes  in  cir- 
culation, as  money."  No  Directors  are  required  for  the  man- 
agement of  these  Banks,  nor  ate  the  stockholders  required  to 
be  citizens  of  the  State. 

It  will  be  perceived,  that  the  General  Banking  law  may  be 
regarded  as  an  excellent  finan' ial  measure  on  the  part  of  the 
State,  to  enhance  the  value  of  her  5  per  cent,  stocks,  since  the 
Legislature  have  made  them,  for  Banking  purposes,  nearly 
equivalent  to  the  stocks  of  the  United  States,  or  those  of  the 
individual  States,  which  pay  interest  semi-annually ;  although 
the  market  value  of  the  latter  is  from  ten  to  fifteen  per  cent, 
higher  than  those  of  Indiana ;  and  consequently  Indiana  bonds 
will  be  the  only  securities  deposited  with  the  Auditor,  as  the 
basis  of  the  Banking  Capital,  until  the  entire  amount  is  ex- 
hausted for  this  purpose  .  And  this  period  will  not  be  a  remote 
one,  unless  an  immediate  change  is  made  in  the  Banking  Laws 
of  Ohio. 

There  are  some  serious  objections  to  this  Law,  as  it  relates 
to  the  security  of  the  community,  and  particularly  in  rela- 
tion to  their  accommodation  with  Bank  facilities,  which  may 
be  briefly  pointed  out.  In  the  first  place,  "  a  Board  of  Di- 
rectors is  not  a  necessary  appendage  to  a  Bank,  nor  are  Stock- 
holders required  to  be  citizens  of  the  State."  Hence  it  follows, 
that  a  single  individual  in  Ohio,  or  New  York,  may  deposit 
with  the  Auditor  of  the  State  of  Indiana,  $50,000  of  the  5  per 
cent  bonds,  and  receive  nearly  an  equal  amount  of  Bank  bills, 
to  be  used  for  Banking  purposes,  provided  that  he  opens  an 
office  within  the  limits  of  the  State  for  the  receipt  of  deposits, 
appoints  a  Cashier,  and  other  officers,  if  he  thinks  proper ;  he 
himself  acting  as  President  and  manager,  and  disposing  of  the 
funds,  as  he  alone  may  determine.  He  may  enlarge  his  circu- 
lation to  $500,000  or  more,  if  he  can,  on  the  deposit  of  the 
requisite  securities,  and  then  distribute  the  amount  among  those, 
who  will  pay  him  the  highest  price  for  these  Bank  facilities.    The 


^ 


y^c>c^ft 


21 

Bonds  of  Railroads,  in  the  process  of  construction,  are  the  pri- 
mary investments  usually  sought  for,  and  these  through  th  ^  active 
agency  of  contractors,  open  a  wide  field  for  the  speedy  distribu- 
tion of  small  Bank  notes.  With  sagacious  management,  other 
avenues  of  circulati  'n  are  easily  found,  and  the  whole  area  of 
agricultural  labor  is  strewed  with  this  wpupioun  ourrency,  no 
one  doubting  its  sterling  character,  until  a  crisis  arrives.  Then 
perhaps,  the  rainbow  of  promise  proves  as  delusive  as  the 
morning  arch,  which  only  portends  a  day  of  darkness  and 
storm.  It  will  be  perceived  that  although  the  Banker  has 
issued  his  half  million  of  dollars  in  Bank  notes,  yet  his  original 
capital  stock  is  not  necessarily  enlarged  beyond  the  original 
sum  of  $50,000,  and  therefore  the  provision  of  the  Law,  render- 
ing "  any  shareholder  liable  in  his  individual  capacity,  for  any 
debt  of  the  Bank  to  an  amount  over  and  above  his  stock,  equal 
to  the  amount  of  his  shares  of  such  stock,"  is  wholly  nugatory, 
beyond  the  minimum  amount  of  $50,000  required  for  the  com- 
mencement of  Banking  operations. 

In  prosperous  times,  when  money  is  abundant,  and  stocks 
high,  no  doubt  such  institutions  will  glide  along  smoothly,  and 
their  bills  pass  currently,  and  without  aeeurity ;  but  in  periods  v/^«j*tVi 
of  difiiculty  and  alarm,  when  the  specie  Banks  are  compelled 
to  entrench  themselves  for  protection,  the  bills  of  these  free 
Banks  would  be  driven  home  with  such  rapidit\%  that  it  would 
be  found  impracticable  to  sustain  such  an  amount  of  circula- 
tion.    If  the  Banker  was  even  inclined  to  redeem  his  notes,  he 
would  find  it  an  Herculean  task,  since  the  bills,  not  having 
been  issued  to  supply  the  ordinary  wants  of  trade,  but  rather 
forced  upon  the  market,  for  the  mere  purpose  of  circulation, 
would  be  found  in  a  few  neighborhoods  only,  and  on  the  least 
alarm,  they  would  be  returned  faster  than  provisions  could  be 
made  for  their  redemption.     The  Massillon  Bank  of  Ohio  fur- 
nishes a  pointed  illustration  of  the  practical  working  of  a  one 
man  power  in  a  Banking  institution,  although  in  this  case,  un- 
fortunately, there  are  no  deposits  of  State  Stocks  to  secure  the 
payment  of  the  $380,000,  which  the  public  have  received  through 
the  hands  of  Railroad  contractors,  and  which  is  now  sold  at 
less  than  half  its  nominal  value.     But  is  it  not  obvious,  that  a 
Banker  who  issues  ten  times  the  amount  of  his  capital,  in  cir- 
culation, does  so  for  speculative  purposes  only  ?    The  tempta- 


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tion  is  great,  for  in  periods  of  prosperity,  he  can  make  $30,000 
or  $40,000  per  annum,  by  his  circulation,  and  if  his  Bank  fails, 
in  a  period  of  scarcity,  he  is  only  liable  for  $50,000  or  the 
amount  of  his  stock ;  and  even  this  he  might  avoid  by  a  timely 
conveyance  to  irresponsible  parties,  and  thus  escape  personal 
liability  altogether,  i^ut  how  long  would  it  require  to  dispose 
of  the  $500,000  of  Indiana  5  per  cent,  bonds  in  the  New  York 
market  at  par,  in  a  period  of  panic ;  or  even  in  a  severe  mone- 
tary crisis ;  and  meanwhile,  what  would  be  the  discount  on  the 
bills  of  his  Bank,  when  driven  into  liquidation  ? 

Past  experience  has  taught  us,  that  the  community  would 
suffer  a  loss  of  at  least  twenty-five  per  cent,  of  their  amount, 
and  we  maintain  that  that  is  not  legitimate  Banking,  which  ex- 
poses a  community  to  such  a  contingent  hazard  ;  and  although 
an  extreme  case  has  been  stated,  yet  it  is  one  which  may  occur, 
and  it  would  not  be  difficult  to  point  to  one,  where  the  circula- 
tion now  exceeds  three  times  the  amount  of  the  capital,  under 
this  system  of  Free  Banking. 

In  regard  to  the  accommodation  of  the  trading  community 
in  Indiana,  a  few  remarks  will  suffice.  Of  all  the  new  Banks, 
established  under  this  Law,  few  of  them,  if  any,  are  Banks  of 
Discount,  at  their  respective  places  of  business,  but  all  of  them 
are  Banks  of  Circulation,  beyond  the  limits  of  the  State,  whence 
they  derive  their  existence,  and  this  is  the  grand  object  of  the 
proprietors  of  the  stock.  The  Law  indeed  says,  that  nothing 
contained  therein  "  shall  be  construed,  to  empower  any  person, 
or  association,  to  conduct  or  carry  on  the  business  of  Banking, 
at  any  other  than  the  place  of  business  of  such  individual 
Banker  or  Banking  association,  which  place  of  business  shall 
in  every  instance,  be  the  same  at  which  their  small  Bank  bills 
respectively  are  made  payable."  Probably  the  business  of 
issuing  and  redeeming  the  circulation  may  be  deemed  a  strict 
compliance  with  the  Law ;  but  the  business  of  distributing 
these  notes  in  the  shape  of  loans  and  discounts,  is  managed 
quite  beyond  the  limits  of  the  State,  and  the  constituents  of  the 
law  makers  derive  little  or  no  benefit  from  their  General  Bank- 
ing Law,  as  they  will  probably  find,  when  their  present  State 
Bank  has  closed  its  operations,  in  1855.  Why  so  excellent  and 
well  managed  an  institution  should  be  doomed  to  extinction, 
and  the  Free  Bsmkers  of  other  States  encouraged  to  occupy  her 


23 


proud  position,  is  an  enigma  to  those,  who  entertain  the  anti- 
quated idea,  that  the  primary  object  of  all  State  governments, 
Is  "  to  promote  the  common  welfare,"  and  to  secure  the  equal 
protection  and  benefit  of  their  own  citizens.  But  the  "  progres- 
sive "  spirit  of  the  age  now  denounces  such  conservatism,  and 
all  our  legislation  is  now  waited  upon  a  succession  of  ever 
varying  experiments. 

We  pass  now  to  the  state  of  Illinois,  where  Bank  legislation 
has  been  more  remarkable,  than  in  any  other  State  in  the  Union, 
and  where  the  modern  system  of  Free  Banking  has  been  finally 
adopted  as  the  last  experiment.  The  first  Bank  established  in 
the  Territory  of  Illinois  was  at  Shawneetown,  in  1813,  the  whole 
territory  then  containing  but  1500  inhabitants :  this  Bank  was 
regularly  incorporated  in  1816,  as  the  Bank  of  Illinois,  with  a 
capital  of  $300,000  for  the  term  of  twenty  years,  and  one  third 
of  this  amount  was  reserved  for  the  subscription  of  the  State, 
when  it  should  be  admitted  into  the  Union.  It  commenced 
business  in  1817,  and,  aided  by  the  government  deposits,  it  ac- 
quired nn  extensive  credit,  paying  specie  for  its  bills  until  Au- 
gust, 1821,  after  the  Kentucky  Banks  had  suspended  specie 
payments  :  but  was  at  length  compelled  to  stop,  and  remained 
dormant,  until  February,  1835,  when  by  an  Act  of  the  Legisla- 
ture, its  charter  was  extended  twenty  years  from  1st  January, 
1837.  On  the  4th  March  following,  its  capital  stock  was  in- 
creased to  $1,400,000,  to  be  subscribed  for  by  the  State,  and 
State  Bonds  to  provide  for  the  funds  were  issued,  and  the  faith 
of  the  State  pledged  for  their  payment,  with  interest,  in  1860. 

The  Constitution  adopted  in  1818,  declared  that  no  new 
Bank,  or  monied  institution  should  be  permitted  in  Illinois,  ex- 
cept a  State  Bank,  and  its  branches,  and  those  then  existing. 
On  the  22d  March,  1819,  a  Bank  was  incorporated,  by  the  name 
of  the  State  Bank  of  Illinois,  for  the  term  of  twenty-five  years, 
with  a  capital  of  $4,0OD,O0O,  one  half  to  be  subscribed  by  indi- 
viduals, and  the  other  half  by  the  State,  whenever  the  Legisla- 
ture should  deem  it  proper.  This  charter  was  repealed  in 
1821,  as  no  effort  was  made  to  carry  it  into  practical  operation ; 
and  another  Bank  was  chartered  in  lieu  of  it,  for  ten  years, 
with  a  capital  of  $500,000,  to  be  owned  by  the  $tate,  and  man- 
aged and  superintended  by  the  Legislature.  This  Act  was  an 
anomaly  in  Legislation,  and   assumed  the  wild  theory,  that 


24 


tii 


ft 


paper  money  was  a  panacea  for  financial  distress.  The  capital 
consist  d  of  its  Bank  plates  only,  and  $300,000  were  directed 
to  be  issued,  and  loaned  on  notes  for  one  year,  with  mortgages 
as  securities,  in  sums  not  exceeding  $1,000  to  each  individual. 
The  notes  issued  by  the  Bank  bore  interest  at  two  per  cent,  per 
annum,  and  the  borrowers  paid  six  per  cent,  on  their  discounted 
notes,  and  these  notes  were  to  be  renewed,  on  the  payment  of 
ten  per  cent,  of  the  principal  annually,  un'il  the  expiration  of 
the  Bank  charter,  when  the  balance  was  to  be  paid.  These 
Bank  notes  were  receivable  in  the  payment  of  taxes,  and  for 
all  debts  due  to  the  State,  counties,  or  the  Bank.  It  had  hardly 
commenced  operations,  before  its  bills  fell  to  75  per  cent., 
shortly  after,  to  50  per  cent,  and  at  length  to  25  cents  on  the 
dollar,  when  they  ceased  to  circulate  at  all.  "  At  one  of  the 
branches,  of  which  there  were  four,  two  dollars  in  specie  were 
received,  which  were  preserved,  as  curiosities,"  and  in  the  other 
three,  none  of  any  consequence,  was  received.  The  country 
was  thus  flooded  with  irredeemable  currency,  a  destruction  of 
public  and  private  credit  ensued  ;  disgraceful  legislation,  degra- 
dation of  morals,  and  a  succession  of  calamities  followed.  The 
authors  of  the  mischief  escaped  unharmed,  but  the  innocent, 
and  unsuspecting  were  plundered  without  mercy.  The  mem- 
bers of  the  Legislature  received  their  pay  in  the  depreciated 
currency  at  the  market  value,  and  on  one  occasion  received  $9 
per  day  for  their  services,  which  the  State  was  compelled  to  re- 
deem at  par,  and  a  loan  of  $100,000,  which  was  received  in 
Bank  notes  at  par,  was  paid  out  by  the  State  at  50  cents  on 
the  dollar. 

In  February,  1835,  a  new  State  Bank  was  incorporated, 
with  a  capital  of  $1,500,000,  with  the  liberty  to  increase  it  to 
$2,500,000,  the  State  to  become  a  partner  and  to  hold  $100,000 
of  the  stock.  In  March,  1837,  an  addition  of  $2,000,000  was 
made  to  its  stock,  to  be  subscribed  for  by  the  State.  Its  char- 
ter was  to  continue  until  February,  1860,  and  a  tax  was  levied 
of  half  per  cent,  per  annum  :  it  had  fifty  days  allowed  for  the  re- 
demption of  its  bills,  and  as  a  consideration  therefor,  the  Bank 
was  required  to  redeem  the  Loan  of  $100,000  above  referred 
to.  To  provide  for  the  funds  for  this  Bank  capital,  Commis- 
sioners were  authorized  to  issue  $2,000,000  in  State  Bonds. 
The  career  of  this  Bank  was  brief.     Its  loans  were  soon  ascer^ 


! 


i^rw 


25 

tained  to  have  been  made  to  irresponsible,  and  insolvent  par- 
ties, and  the  Bank  was  shortly  compelled  to  suspend  payment, 
and  finally  on  the  24th  January,  1843,  it  went  into  liquidation, 
as  will  be  seen.     In  1841,  an  Act  was  passed  to  preserve  the 
charter  of  the  Bank  of  Illinois,  at  Shawneetown,  which  had 
been  forfeited,  provided  it  would  pay  $200,000  of  the  State 
debt;  but  in  1843,  two  other  Acts  were  passed,  one  '*  to  dimin- 
ish the  State  debt,  and  put  the  State  Bank  into  liquidation,'* 
and  the  other  "  to  reduce  the  public  debt  $1,000,000,  and  to  put 
the  Bank  of  Illinois  at  Shawneetown  into  liquidation."     Ac- 
cordingly, without  a  judicial  investigation  of  the  afl'airs  of  the 
Bank,  Commissioners  were  appointed  to  take  possession  of  the 
Banking  House,  and  its  contents,  and  everything  belonging  to 
it,  and  in  case  the  Directors,  stockholders  or  officers  interfered 
to  protect  their  property,  they  were  declared  by  this  law,/<?/ow5, 
and  liable  to  imprisonment  in  the  penitentiary  for  a  term  not 
exceeding  ten  years.     It  was  a  fortunate   thing  for  the  honor 
and  credit  of  the  State,  that  this  law  was  suspended  in  its  ope- 
ration, and  another  Act  substituted,  which  went  into  quiet  efl^ect. 
This  case  has  been  recently  followed  by  the  Acts  of  the  State 
of  Ohio,  and  both  are   violations  of  the  fourth  Article  of  the 
Constitution  of  the  United  States,  which  secures  to  all  citizens 
the  inviolability  of  persons,  houses,  papers  and  effects  against 
unreasonable  searches  and  seizures,  or  the  deprivation  of  pro- 
perty, but  by  the  judgment  of  one's  own  peers,  or  the  law  of  the 
land.     Of  the  $500,000  of  circulation  and  certificates  of  deposit 
held  by  the  community  against  the  Bank,  when  their  assign- 
ment was  made  in  1845,  about  $410,000  have  been  redeemed, 
and  destroyed,  leaving  about  $90,000  unpaid,  and  all  the  stock 
paid  in  by  individuals  is  a  dead  loss  to  them  ;  while  the  State 
laid  violent  hands  on  its  own  bonds  for  their  share  of  stock, 
and  annulled  their  liability.     It  must  be  borne  in  mind,  that 
when  the  State  became  a  partner  in  these  two  State  Banks,  she 
issued  bonds  for  her  share  of  the  stocks  for  $3,100,000,  instead 
of  paying  cash  therefor,  and  these  bonds  were  offered  for  sale 
in  New  York  and  London  and  "  were  the  sport  of  Brokers, 
Bankers,  and  bankrupts."     Subsequently  the   legislature  can- 
celled and   burnt  $3,050,000  of  these  bonds   in   the   Capitol 
Square  at  Springfield,  and  a  corresponding  amount  of  stock 
was  surrendered  therefor,  thus  cheating  the  community  of  their 
4 


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26 

just  claims,  as  innocent  bill  holders,  and  eluding  their  liability 
to  the  other  stockholders,  who  had  paid  in  cash  their  share  of 
the  stock.  If  these  bonds  had  been  the  notes  of  stockholders, 
given  for  stock,  and  held  as  such  by  the  Bank,  until  it  became 
insolvent,  and  the  Bank  had  surrendered  these  notes  for  the 
same  amount  of  stock,  would  not  the  bill  holders  have  cried  out 
against  such  a  flagrant  injustice,  and  avenged  it  ?  But  the  act 
was  a  legislative  one,  and  men  do  that  in  an  oflicial  capacity, 
which  would  disgrace  them  as  individuals.  Public  opinion, 
however,  has  long  since  stamped  these  proceedings,  with  the 
opprobrium  they  so  richly  merited. 

After  the  general  crash  in  1837,  the  State  was  without  Bank- 
ing associations,  until  1851,  when  a  General  Banking  Law  was 
passed,  which  authorized  any  person  or  persons,  on  depositing 
with  the  Auditor  of  State,  any  of  the  stocks  of  the  United  States, 
or  of  any  other  individual  States,  on  which  the  full  interest  of 
six  per  cent,  was  annually  paid,  to  receive  an  equal  amount  of 
Bank  notes,  to  be  used  for  Banking  purposes,  and  on  the  stocks 
of  Illinois,  eighty  per  cent,  of  the  market  value  of  said  stocks  in 
New  York,  in  like  manner,  in  Bank  notes,  and  such  person  or 
persons  were  duly  authorized  to  loan  and  circulate  as  money, 
the  Bank  notes  thus  issued  by  the  Auditor. 

Restrictions  were  imposed,  requiring  that  the  aggregate 
amount  of  the  capital  stock  should  not  be  less  than  $50,000, 
and  that  the  applicants  should  name  the  style  of  the  Bank,  the 
place  where  it  was  to  be  located,  the  amount  of  the  capital, 
the  number  of  shares,  the  names  and  places  of  residence  of  the 
stockholders,  and  the  period  when  the  association  should  com- 
mence and  terminate  their  business,  and  upon  filing  a  certifi- 
cate of  these  facts,  the  party  became  a  body  politic  and  cor- 
porate, by  the  name  assumed,  for  the  term  fixed  in  the  certifi- 
cate. 

The  amount  of  Bank  notes  is  limited  to  the  amount  of 
bonds  deposited  with  the  Auditor,  but  the  denominations  are 
optional,  so  that  the  whole  amount  of  circulation  may  be 
claimed  in  one  dollar  notes,  if  the  parties  think  proper;  but  the 
bills  must  be  made  payable  in  Specie,  at  the  place  of  business, 
on  demand,  and  on  failure  thereof  for  ten  days,  the  Bank  is  lia- 
ble to  12^  per  cent,  damages  per  annum,  in  lieu  of  interest, 
and  forfeits  its  corporate  powers  and  privileges.     The  stock- 


ll!» 


1  ^   ' 


!fiEfe=£^s= 


37 


holders  are  individually  liable  to  the  amount  of  their  stock,  for 
all  the  indebtedness  and  liabilities  of  the  Bank,  and  full  provi- 
sion is  made  for  the  collection  of  the  same,  should  occasion  re- 
quire. The  Act,  it  will  be  seen,  confers  a  corporate  Banking 
privilege  for  an  unlimited  amount  of  capital,  and  for  any  length 
of  time,  which  the  applicants  may  designate,  even  if  it  be  pei-- 
petual. 

It  will  thus  be  seen,  that  the  three  great  States  of  Ohio,  In- 
diana and  Illinois,  have  all  adopted  the  '*  Free  Banking  sys- 
tem," in  their  Constitutions,  and  that  this  is  to  be  the  future 
policy  of  these  States.  All  future  Banks  are  to  become  the 
creditors  of  the  States,  by  purchasing  their  bonds,  and  by  de- 
positing these  bonds  with  the  Government,  they  return  to  the 
parties  Bank  note  paper,  which  they  authorise  them  to  issue  as 
money.  Neither  individuals  nor  Banks  can  lend  that  which 
they  have  not — and  if  they  lend  credit,  in  the  shape  of  Bank 
notes,  without  the  means  to  redeem  them  in  Gold  and  Silver, 
they  commit  a  fraud  on  the  community,  as  they  lend,  and  put 
into  circulation,  that  which  is  not  money,  nor  the  representa- 
tive of  money.  This  system  of  converting  State  Stocks  into 
Banking  capital  will  surely  prove  a  delusion,  whenever  a  great 
revulsion  occurs,  for  it  is  a  departure  from  the  true  principles 
of  safe  and  sound  Banking,  which  are  based  on  money,  in 
Gold  and  Silver  deposited,  and  kept  partly  in  possession,  for 
immediate  exigencies. 

But  there  is  another  hazard  in  the  Free  Banking  system  of 
these  States,  which  deserves  some  consideration,  and  which 
arises  from  the  extreme  latitude,  which  is  granted  in  regard  to 
the  management  of  these  Banks.  If  in  the  commercial  metro- 
polis of  the  Union,  large  institutions  have  been  in  peril,  from 
the  indiscretion  of  Bank  Directors,  what  may  be  reasonably  ex- 
pected from  the  inexperienced  Managers  of  these  small  Banks, 
which  are  now  supplying  our  Western  States  with  currency? 
The  Free  Banking  system  invites  the  inexperienced,  as  well  as 
others,  to  enter  upon  a  business,  which  requires  skill,  expe- 
rience and  talents  to  manage  it  advantageously,  but  which 
many,  who  are  now  embarking  in  it  do  not  seem  to  possess. 
With  a  comparatively  small  sum  to  commence  with,  the  opera- 
tions of  these  currency  makers,  may  be  widely  extended ;  but 
when-  difiicult  financiering  becomes  necessary,  originating  with 


I 


«,    A 


28 

imprudent  discounting,  or  deferred  payments,  then  there  will  be 
a  great  hazard  of  a  catastrophe,  in  which  even  the  bill  holders 
may  be  the  sufferers. 

About  twenty-five  years  since,  the  foreign  trade  of  our  coun- 
try passed  through  a  remarkable  change  in  its  operations,  by 
the  substitution  of  letters  of  credit  on  European  Houses,  for 
merchandise  and  coin  for  their  outward  cargoes.  Instead 
of  gathering  together  all  the  available  means,  which  a  mer- 
chant possessed,  or  could  command,  on  the  strength  of  his  own 
credit,  and  periling  the  whole  in  a  single  cargo,  or  in  numerous 
adventures  to  widely  distant  countries,  he  had  merely  to  satisfy 
the  Agent  of  some  foreign  Banker,  that  he  possessed  the  means 
to  meet  any  contingent  loss,  which  might  attend  the  adventure, 
and  his  capital  in  the  shape  of  a  letter  of  credit  was  furnished 
to  him,  and  the  most  hazardous  enterprises  were  undertaken, 
merely  on  the  strength  of  the  previous  success  of  others.  Indi- 
viduals, who  during  an  industrious  life  time,  had  limited  their 
operations  to  shipments  of  fish  and  lumber  to  the  West  Indies 
for  sugar  and  molasses,  suddenly  became  interested  in  numer- 
ous adventures  to  Calcutta  for  indigo,  to  Canton  for  silks  and 
teas,  to  Cuba  for  sugar  for  the  St.  Petersburgh  market,  to  Rio 
Janeiro  for  coffee  for  Hamburgh  or  Trieste,  and  without  any 
experience  of  the  trade,  and  sometimes  without  even  a  knowl- 
edge of  the  proper  seasons  to  purchase ;  of  course  the  most 
disastrous  losses  occurred,  year  after  year,  until  the  final  crash 
of  the  three  great  Banking  Houses  in  London  disclosed  the 
fearful  amount,  which  inexperience  had  engulphed,  by  the  use 
of  these  tempting  allurements  to  foreign  adventures. 

In  the  providence  of  God,  men  are  adapted  to,  and  fitted  for 
their  various  pursuits,  by  constitution,  temperament,  and  edu- 
cation. As  vain  is  it  to  expect  "  grapes  of  thorns,  or  figs  of 
thistles,"  as  successful  results  from  an  inexpert  workman, 
whether  professionally,  artistically,  or  in  the  ordinary  operative 
departments  of  life.  How  then  can  a  trader  become  a  mer- 
chant, a  mechanic  a  Banker,  or  a  Banker  a  mechanic,  without 
previous  preparation  and  instruction.  Take  men,  educated  for 
one  profession,  or  pursuit,  and  divert  their  attention  to  another 
of  a  dissimilar  character,  and  it  is  hopeless  to  expect  from  them 
success  or  eminence  in  their  new  vocation. 

Although  Kentucky  is  the  oldest  of  the  four  States,  (having 


'-  ■^■*-  ^^^-'i^ 


29 

been  admitted  into  the  Union  in  1791,)  we  have  reserved  her 
to  the  last,  because  her  system  of  Banking  is  of  a  more  fixed 
character,  and  unlike  those  of  the  three  other  States,  which  we 
have  been  reviewing. 

The  first  Banking  institution  in  Kentucky  was  chartered  in 
1807,  under  the  name  of  the  Bank  of  Kentucky,  with  a  capital 
of  one  million  of  dollars.     Previously  however  to  this,  the  Legis- 
lature, in  1801-2,  chartered  an  Insurance  Company  in  Lexing- 
ton, whose  notes,  payable  to  bearer,  were  transferable  by  de- 
livery, and  this  feature  made  the  institution  a  Bank  of  circula- 
tion, and  such  it  became ;  but  the  clause  which  granted  this 
Banking  power,  was  not  thoroughly  understood  by  the  mem- 
bers who  voted  for  it.    The  political  party  which  then  controlled 
Kentucky,  held  Banks  in  horror,  and  never  would  have  passed 
the  Bill,  had  they  understood  its  provisions.     In  1804,  it  was 
proposed  to  repeal  its  Banking  powers,  but  it  was  negatived  by 
the  Governor ;  meanwhile,  it  had  divided  eight  per  cent,  semi- 
annual   dividends,   and    was    consequently   denounced    as   a 
"  monied  aristocracy"     Its  chartered  rights  extended  to  Janu- 
ary, 1818,  but  they  were  mutilated,  and  finally  superseded  by 
the  incorporation  of  the  Bank  of  Kentucky  in  1807,  as  before 
stated.     This  Bank  also  having  made  liberal  dividends,  in- 
curred a  similar  anathema,  and  in    1817,  forty  Independent 
Banks,  with  capitals  amounting  to  ten  millions  of  dollars,  were 
chartered,  which  were  by  law  permitted  to  redeem  their  notes 
with  the  paper  of  the  Bank  of  Kentucky  instead  of  Specie. 
This   Bank  had  again  resumed  Specie   payments,  after  the 
peace  of  1815,  and  was  in  good  credit.     In  the  summer  of  1818, 
the  State  was  inundated  with  the  paper  of  these  Banks ;  their 
Directors  were  generally  men  destitute  of  experience  or  knowl- 
edge of  financial  aflfairs,  and  in  some  instances,  "  devoid  of 
common  honesty."     Large  loans  were  made,  and  rashly  ex- 
pended ;  speculation  was  rife,  and  most  of  the  bubbles,  which 
were  set  afloat,  collapsed  within  one  brief  year.     The  pressure 
of  debt  became  universal,  and  to  relieve  "  the  public  outcry  for 
relief,"  the  Legislature  of  1820-21,  chartered  the  "  Bank  of  the 
Commonwealth,"   the  People's  Bank,  with  a  capital   of  three 
millions  of  dollars,  to  be  printed  on  slips  of  paper,  purporting 
to  pledge  the  public  faith  for  its  redemption ;  in  other  words,  its 
paper  was  made  payable,  and  receivable  for  the  public  debts 


I 


i.i. 


30 


»j 


vi. 


\<, 


and  taxes ;  and  certain  lands,  owned  by  the  State,  south  of 
Tennessee  river,  were  pledged  for  the  redemption  of  these  notes. 
If  any  creditor  declined  to  receive  it  in  payment  of  his  debt, 
the  debtor  was  authorized  to  "  replevy  the  debt  for  the  space  of 
two  years."  But  this  was  not  all ;  by  the  terms  of  the  charter 
of  the  Bank  of  Kentucky,  the  Legislature  had  reserved  the  right 
to  elect  such  a  number  of  Directors,  as  would  secure  to  them  the 
control  of  the  Board.  Accordingly,  an  experienced  conservative 
President  and  Board  of  Directors  were  superseded  by  pledged 
parties,  who  had  promised  to  receive  the  notes  of  the  Bank  of 
the  Commonwealth,  in  payment  of  debts  due  to  the  Bank  of 
Kentucky,  and  thus  the  latter,  whose  notes  were  redeemed  in 
Specie,  and  whose  stock  was  at  par,  was  struck  down  by  a  blow, 
which  depreciated  its  value  fifty  per  cent,  and  entailed  upon  it 
a  permanent  suspension  of  specie  payments. 

The  paper  of  the  new  Bank  rapidly  sunk  to  one-half  of  its 
nominal  value,  and  creditors  had  the  choice  of  two  evils — either 
the  payment  of  one-half  of  their  debts,  or  nothing  whatever  for 
two  years,  and  then  to  do  the  best  in  their  power,  with  the  haz- 
ard of  new  delays,  and  the  possible  bankruptcy  of  their  se- 
curities. 

The  confiict  of  the  two  parties,  known  as  the  "  relief"  and 
"  an ti- relief,"  or  the  "  old  court "  and  "  new  court,"  was  the 
fiercest  which  ever  agitated  the  State ;  but  after  a  continued 
struggle,  which  was  characterized  by  great  bitterness  of  feeling 
on  both  sides,  the  conservative  party  triumphed  in  1826-27, 
after  a  contest  of  five  years  duration ;  the  "  old  court"  was  re- 
stored, the  replevin  Act  repealed,  and  the  paper  of  the  Com- 
monwealth Bank  suppressed,  instead  of  being  re-issued,  and 
finally  destroyed  by  successive  Acts  of  the  Legislature ;  its 
place  being  supplied  by  the  notes  of  the  branches  of  the  Bank 
of  the  United  States,  at  Lexington  and  Louisville. 

After  the  fate  of  the  United  States  Bank  was  sealed,  the 
dominant  party  in  Kentucky,  in  1833,  determined  to  establish 
State  Banks,  to  supply  its  place,  and  in  the  sessions  of  1833  and 
'34,  three  Banks  were  chartered,  viz  :  The  Bank  of  Kentucky, 
with  a  capital  of  five  millions,  the  Northern  Bank  of  Kentucky, 
with  three  millions,  and  the  Bank  of  Louisville,  with  five  mil- 
lions of  dollars ;  all  of  which  are  now  in  existence,  but  whose 
aggregate  capitals  are  but  little  more  than  seven  millions, 


1^  A  Ui 


31 


instead  of  thirteen,  as  originally  established,  and  of  which  the 
State  owns  $1,500,000.  In  May,  1837,  all  these  Banks  sus- 
pended specie  payments,  and  the  Legislature  legalized  their  do- 
ings, and  refused  to  exact  the  forfeiture  of  their  charters,  to 
which  they  were  liable. 

In  1838,  the  monetary  derangement  appeared  to  have  passed 
away,  and  a  fair  and  prosperous  state  of  things  ensued,  for  a 
brief  season  ;  during  which  period,  the  Legislature  granted  the 
charter  of  the  Southern  Bank  of  Kentucky;  but  shortly  afterward, 
new  difficulties  arose,  a  second  suspension  followed,  the  repu- 
diation of  their  bonds  by  several  of  the  other  States,  the  universal 
derangement  of  the  currency  South  and  West  of  New  York,  the 
general  prostration  of  trade  and  commerce,  and  the  consequent 
destruction  of  individual  credit.     These  all  combined,  rendered 
it  impossible  to  obtain  the  stock  of  this  Bank  at  that  period, 
and  put  it  into  operation.     The  people  of  Kentucky,  however, 
succeeded  in  staggering  on,  under  their  load  of  pecuniary  em- 
barrassments, until  1842,  when  driven  almost  to  desperation  by 
their  frightful  accumulation  of  debt,  under  which  they  had  been 
laboring,  they  once  more  appealed  to  the  Legislature  to  pro- 
vide some  means  for  their  relief.     A  calm  dispassionate  course 
of  action,  an  extension  of  the  time  when  judgments  could  be 
given,   and  liberal   accommodations   granted    by  the    Banks, 
served  to  tranquilize  the  public  feeling,  and  with  the  year  1843, 
the  financial  pressure  gradually  diminished,  and  shortly  after- 
ward ceased  altogether. 

In  1838,  when  the  Banks  resumed  specie  payments,  the 
circulation  was  about  four  millions,  which  was  increased  to 
$5,418,320,  on  the  1st  January,  1839.     But  after  the  suspension 
in  the  following  October,  it  was  gradually  reduced  to  less  than 
three  millions,  and  at  the  close  of  1842,  it  was  only  $2,801,219, 
when  the  Kentucky  Banks  again  resumed  specie  payments, 
and  on  the   1st  January,  1850,  the  three  Banks  and  thirteen 
branches    had    $6,683,524   in    circulation,   with   a  capital   of 
$7,030,000.     The  Southern  Bank  of  Kentucky  had  its  charter 
amended,  and  went  into  operation  in   1852,  with  a  capital  of 
$1,300,000,     Subsequently,  charters  have  been  granted  to  the 
Farmers'  Bank  with  a  capital  of  $2,300,000,  the  Commercial 
Bank  with  $400,000,  the  Kentucky  Trust  Company  with  an 
unlimited  capital,  and  the  Newport  Safety  Fund  Bank  with 


I    , 


4\ 


I 


«l  ■ 


32 

$300,000,  of  which  only  $33,000  is  yet  paid  in  as  capital,  and 
$50,000  as  safety  fund.  "The  Kentucky  Trust  Company" 
was  originally  chartered  as  a  Savings  Bank  in  Covington,  with 
a  capital  limited  to  $50,000,  but  in  a  subsequent  session  of 
the  Legislature  its  name  was  changed,  new  privileges  granted, 
and  the  Directors  were  empowered  to  fix  the  limit  of  their  capi- 
tal by  their  own  vote,  arbitrarily.  Accordingly,  this  may  be 
increased  to  ten  or  fifty  millions,  if  the  Directors  think  proper, 
and  the  charter  being  perpetual,  as  well  as  unlimited,  this  insti- 
tution enjoys  larger  privileges,  than  any  other  Banking  com- 
pany in  the  United  States.  Indeed,  we  know  of  but  three  others 
which  have  perpetual  charters — the  Manhattan  Company,  the 
Dry  Dock  Bank,  and  the  Chemical  Bank  of  New  York,  with 
capitals  of  $2,050,000,  $200,000,  and  $300,000,  only.  But  con- 
ditions are  imposed  upon  each  of  these  charters  :  one  being  the 
supply  of  water  to  the  City ;  the  second,  the  construction  of 
docks ;  and  the  third,  the  manufacture  of  chemicals.  All  of 
which  requsitions  are  complied  with,  to  a  very  limited  extent 
only. 

The  only  other  unlimited  charter  in  the  United  States,  of 
which  we  are  cognizant,  is  that  of  the  Atlantic  &  St.  Lawrence 
Railroad  Company,  in  the  State  of  Maine,  which  enjoys  greater 
privileges  than  any  other  in  the  country.  In  this  singular  in- 
stance, the  Legislature  granted  a  perpetual  charter;  a  right  to 
hold  property  to  an  unlimited  amount^  both  within  and  beyond 
the  State  (consistently,  in  respect  to  the  latter,  with  the  "  lex 
loci,"  of  course)  to  exact  tolls  of  passengers,  and  freight,  ac- 
cording to  the  discretion  of  the  Company,  and  without  Legisla- 
tive restraint ;  to  be  exempt  from  connection  with  any  other 
Railroad  whatever,  on  the  entire  westerly  side  of  its  length, 
without  its  own  consent  thereto ;  to  be  free  from  all  other  taxa- 
tion on  its  real  estate,  by  the  several  towns  and  cities,  through 
which  the  road  passed,  than  that  to  which  individuals*  real 
estate  was  subjected,  and  then  to  be  valued  only  as  "real 
estate  of  the  same  quality,  in  such  town,  city,  or  plantation  is 
valued ;"  to  be  forever  exempted  from  all  other  taxation,  than 
a  division  with  the  State,  of  the  net  income  of  the  road,  after 
it  shall  exceed  ten  per  cent,  per  annum,  and  an  exemption  of 
the  charter  from  being  "  ever  revoked,  annulled,  limited,  or 
restrained,  without  the  consent  of  the  Corporation,  except  by 


33 

due  process  cf  law."    Fifteen  years  were  also  allowed  to  com- 
plete the  construction  of  the  road. 

The  prodigal  liberality  of  this  charter,  is  so  far  as  we  know, 
without  a  parallel  in  this  country. 

We  have  thus  gone  through  with  the  tedious  details  of  the 
Banking  history  of  the  four  States  of  Ohio,  Indiana,  Illinois  and 
Kentucky,  to  show  how  wide  a  departure  there  has  been  in  their 
course,  from  sound  Banking  principles,  and  to  follow  out  the  con- 
sequences, which  have  resulted  from  a  false  system.     The  error 
in  three  of  these  States  has  been  the  same,  and  it  has  been  at- 
tended with  disastrous  issues,  both  to  the  community,  and  to  the 
Stockholders.     Contrast  the. system,  which  has  stood  the  test  of 
half  a  century  in  New  England,  with  that  of  the  great  valley  of 
the  Ohio,  and  if  experience  can  teach  any  valuable  lesson,  it  is 
surely  to  be  found  here.     The  commerce  of  the  former  has  been 
often  jeopardised,  despoiled,  and  almost  annihilated,  by  em- 
bargoes, seizures  and  captures, in  peace  and  in  war:  its  manu- 
facturing interests  have  encountered  every  disaster,  which  physi- 
cal causes  occasion,  or  political  rancor  could  array ;  its  reluc- 
tant soil  has  yielded  only  the  means  of  comfortable  subsistence 
to  her  inhabitants  ;  yet  her  capital  has  always  been  steadily  in- 
creasing, with  each  decade  of  years,  and  in  her  darkest  hours, 
she  has  always  had  the  means  of  redeeming  her  Bank  issues. 
During   the   war  of   1812-15,  and   in   the   monetary  crisis  of 
1837-8,  New  England  could  have  sustained  the  specie  payments 
of  her  Banks,  but  out  of  sympathy  to  her  sister  States,  she 
yielded  to  the  popular  voice,  at  both  periods,  and  was  the  most 
ready  to  resume  her  payments  at  the  appointed  dates. 

In  the  Western  States  however,  all  the  primary  Banking  in- 
stitutions were  commenced  with  mistaken  views,  and  upon  a 
delusive  basis,  and  the  first  financial  storm,  which  passed  over 
the  country,  after  their  organization,  swept  away  their  nominal 
resources,  and  scattered  them,  like  withered  leaves  in  an  au- 
tumnal gale.  With  a  genial  climate,  a  fertile  soil,  and  the 
sure  reward,  which  industry  combined  with  enterprize  would 
command,  the  gradual  attainment  of  wealth  was  certain ;  but 
the  mania  of  land  speculation  seized  the  whole  western  section 
of  the  country,  the  prices  of  all  commodities  reached  an  unpre- 
cedented valuation,  and  States,  cities  and  individuals  rushed 
madly  into  enterprises  of  the  most  extravagant  character. 
5 


34 


^i 


H 


Projects  of  Canals,  Turnpikes,  Railroads,  and  other  internal  im- 
provements, were  undertaken,  far  beyond  the  wants  of  the  com- 
munity, or  their  ability  to  pay  for  them ;  and  this  was  done, 
without  making  any  solid  provision  to  defray  the  cost  of  con- 
struction, or  even  the  interest  accruing  thereon  ;  and  the  natu- 
ral consequences  followed — universal  bankruptcy;  nor  could 
any  other  result  have  been  reasonably  expected. 

The  Western  Banks  appear  to  have  adopted  the  "  Continen- 
tal money  "  system,  instead  of  the  secure  and  profitable  basis, 
which  later  times,  and  more  peaceful  pursuits  had  subsequently 
founded  in  the  older  States.     In  our  Revolutionary  strugglet 
nearly  360  millions  of  paper  money  were  issued,  for  the  redemp- 
tion of  which,  no  provision  was  made ;  but  without  this  succor, 
that  greatest  achievement  of  civil  liberty  would  probably  never 
have  been  accomplished  ;  and  although  the  country  was  rescued 
from  colonial  dependence,  thousands  of  brave  and  self-sacri- 
ficing patriots,  who  bore  the  burthen  of  severe  service  and  de- 
privation, were  utterly  ruined,  and  with  their  families,  beggared. 
It  would  be  natural  to  suppose,  that  such  disastrous  results 
would  have  engendered  a  deadly  hostility  to  paper  money,  in 
all  future  time.     But  scarcely  had  the  actors  in  the  glorious 
scenes  of  our  Revolution  passed  away,  before  the  same  delusive 
scheme  of  finance  was  resorted  to  by  their  descendants ;  on  a 
smaller  scale,  it  is  true,  but  for  widely  different  objects.     The 
first,  effected  our  national  independence ;  the  last,  degraded  sove- 
reign States,  and  reduced  thousands  of  individuals  to  the  thral- 
dom of  bankruptcy.     It  may,  indeed,  be  safely  asserted,  that 
much   of  the   prejudice   and   hostility,  which  is   occasionally 
evinced  against  our  paper  money  system,  is  attributable  to  the 
abuses  which  have  crept  into  it,  through  the  artifices  of  design- 
ing men,  or  the  gross  mismanagement  of  the  inexperienced. 
This  modern  Banking  system,  with  all  its  glaring  defects,  how- 
ever, is  the  source  of  a  widely  extended  prosperity.     Deprived 
of  its  facilities,  the  merchant  would  soon  find  hinvself  circum- 
scribed within  very  narrow  limits,  the  manufacturer  would  be 
compelled  to  curtail  his  operations,  and  the  mechanic  would  be 
dependent  upon  the  sale  of  the  products  of  his  labor,  for  future 
employment, 

But  the  question  is  asked,  how  can  this  paper  money  system 
be  so  fortified,  as  to  render  its  issues  perfectly  secure  to  bill 


U 

holders  ?  In  our  former  remarks  on  this  subject,  we  urged  the 
importance  of  having  only  Banks  with  large  capitals,  a  specie 
basis,  and  experienced,  prudent  Directors,  limited  by  such  re- 
straints, as  the  experience  of  the  past  forty  years  had  furnished 
and  proven  to  be  necessary  in  our  Eastern  States,  and  in- 
stanced Massachusetts  in  particular.  If  a  Bank,  after  having 
its  capital  paid  in,  in  Coin,  or  its  equivalent  thereto,  discounts 
nothing  but  strictly  business  paper,  which  will  mature  in  sixty 
days  from  the  day  of  discount,  it  can  never  be  in  jeopardy. 
The  bills,  which  it  pays  out  for  these  discounted  notes,  repre- 
sent the  value  of  the  merchandise,  for  which  the  notes  were 
taken,  endorsed  by  the  names  of  those,  who  sold  the  property 
for  the  notes,  which  they  have  exchanged  for  the  bills  of  circu- 
lation. "  While  this  rule  is  adhered  to,  there  cannot  be  an  ex- 
cessive issue  of  currency,  for  the  relative  proportion  of  currency 
with  commodities  will  be  regulated  in  the  first  place  by  the  de- 
mand, and  secondly  by  the  valuation  thereof,  by  Bank  Directors." 

It  is  true,  that  more  may  be  bought,  than  the  wants  of  the 
community  may  require,  for  purposes  of  speculation  ;  and  there- 
fore the  fact  of  actual  purchases  is  no  proof  of  an  actual  exist- 
ing want,  or  the  necessities  of  the  community.  Hence  the  ob- 
vious necessity  of  having  prudent  Directors,  who  will  not  only 
form  a  correct  judgment  of  the  credit  of  the  applicants  for  dis- 
counts, but  will  also  estimate  the  probable  results  of  the  specu- 
tions,  for  which  the  notes  were  originally  given.  In  all  prudent 
Boards  of  Directors,  the  credit  of  the  promissors  is  as  closely 
scrutinized,  as  that  of  the  endorsers.  But  when  Banks  issue 
their  notes  for  paper  given  for  real  estate,  or  land  operations, 
they  disturb  the  currency  and  exchanges,  for  they  then  discount 
paper,  which  represents  property,  which  will  not  probably  be 
sold  in  time  to  enable  the  borrowers  to  pay  the  notes  at  matu- 
rity. The  past  history  of  the  Banks  furnishes  instances,  where 
they  have  safely  passed  the  crises  of  1820,  '25  and  '28,  being 
then  managed  on  commercial  principles,  and  have  subse- 
quently been  prostrated,  by  their  change  of  policy,  converting 
their  institutions  into  Banks  of  accommodation ;  and  discounting 
notes,  with  the  promises  of  renewal,  upon  the  payment  of  a 
portion  of  the  loan. 

We  believe  that  we  have  stated  the  true  basis  of  Banking, 
and  as  general  principles,  no  business  man,  and  certainly  none 


.  ^' 


> 


36 

of  the  community,  who  have  their  daily  means  of  subsistence 
invested  in  Bank  notes,  can  withhold  their  assent  to  their  cor- 
rectness. If  such  is  the  case,  why  is  there  not  more  rigor  in 
public  opinion,  which  ought  to  sway,  or  even  direct  our  legisla- 
tive enactments.  The  great  error  in  our  democratic  form  of 
government,  is,  that  the  sovereign  people  are  too  facile,  and 
are  governed  by  demagogues,  instead  of  principles.  There  are 
honest  men  enough  in  both  the  great  political  parties,  from 
which  to  select  "  good  men,  and  true  "  for  our  legislators  :  As 
for  the  agitators,  let  them  remain  where  they  ever  have  been, 
"  the  scum  of  the  poUtical  pot,"  whose  harmless  effervescence 
is  not  only  superficial,  but  transitory. 

But  the  opponents  of  this  "  antiquated  system  of  Banking," 
sneeringly  inquire,  if  in  this  "  progressive  ''  age,  we  are  to  re- 
tain this  conservative  principle,  like  an  incubus  on  the  commu- 
nity, and  reject  all  improvements  in  financial  operations,  while 
all  the  great  interests  of  society  are  undergoing  a  progressive 
mutation.     The  ready  answer  is,  that  all  improvements  ought 
readily  to  be  adopted  in  finance,  as  quickly  as  they  are  in  ma- 
chinery, in  the  arts,  or  in  any  of  the  departments  of  science. 
But  it  is  necessary  to  ascertain,  in  the  first  place,  if  what  are 
termed  improvements  are  really  such.     For  many  years  past, 
we  have  been  experimenting  on  our  Banking  system,  in  most 
of  our  States,  and  in  many  of  them,  the  popular  sentiment  runs 
in  favor  of"  Free  Banks,"  which,  we  fear,  will  in  the  end,  prove 
to  be  a  delusive  theory. 

"  Free  Banking,"  says  GovernorShunk,  *'in  its  legitimate  sense, 
is  the  right,  which  every  man  enjoys,  to  lend  his  own  money, 
to  whom  he  pleases.  It  is  the  exchange  of  money  for  securi- 
ties, to  be  repaid  with  interest.  It  involves  no  fictitious  in- 
crease of  the  circulation,  but  may  be  carried  on  to  an  indefinite 
extent,  without  affecting  the  currency.  This  is  the  Free  Bank- 
ing, which  has  at  all  times  supplied,  and  does  now  supply,  the 
wants  of  a  large  proportion  of  borrowers,  and  commends  itself  to 
general  confidence  and  approval,  by  its  simplicity,  and  adapta- 
tion to  the  circumstances  of  the  people."  "  But  if  the  system 
of  converting  State  stocks  into  Banking  capital,  and  hypothe- 
cating them  as  a  security  for  the  payment  of  Bank  issues,  were 
not  a  delusion,  mortgages  on  real  estate  might  be  used  for  the 
same  purpose,  which  would  afford  an  equal,  if  not  a  better 


87 

security  for  the  payment  of  notes,  and  by  this  process,  the  whole 
value  of  the  real  estate  of  the  country  might  be  converted  into 
Banking  capital,  and  the  people  into  a  nation  of  Bankers. 
This  proposition  shows,  that  the  whole  scheme  is  illusory  and 

unsound." 

In  1840,  the  distinguished  author  of  the  History  of  the  United 
States  (Mr  Hildreth,)  published  a  work  on  Banks,  Banking  and 
Currency,  in  which  he  advocated  the  expediency  of  the  Free 
Banking  system,  and  the  issue  of  one  dollar  notes.  In  regard 
to  the  former,  he  maintains,  that  if  the  Government  required  of 
Banking  associations,  security  for  the  payment  of  their  circu- 
lating notes,  as  a  condition  previous  to  their  issue,  that  this  is 
the  only  restriction  which  can  be  of  any  practical  benefit  to  the 
community,  and  that  justice  to  the  holders  of  tiie  notes  impera- 
tively requires  such  a  provision. 

The  author  undoubtedly  had  in  view,  the  New  York  law  of 
1838  when  he  advocated  this  system,  but  the  events  of  a  later 
date'have  shown,  that  the  securities,  which  these  associaUons 
had  provided,  have  proved  to  be  very  unsubstantial  and  delu- 
sive ;  and  that  the  new  Free  Banks,  which  came  into  existence 
"like  new  mercantile  establishments,  new  railroads,  new  ca- 
nals, new  lines  of  packets,  &c.,  facilities,  which  those  who  em- 
ploy  them,  may  and  sometimes  do  employ  them  U>  tlieir  own 
damage^  have  in  repeated  instances,  resulted  in  serious  losses 
to  tiie  community.  The  Jamesville,  Onondaga,  Walter  Joy, 
and  other  Free  Banks  have  afforded  illustrations  of  the  prm- 
ciple,  that  Banks  may  be  used  to  our  "  own  damage." 

As  to  the  expediency  of  issuing  small  notes,  the  Banks  in 
most  of  the  States  are  judiciously  restricted  to  an  amount  of 
about  twenty-five  per  c^nt.  of  their  circulation,  notwithstanding 
Mr.  Hildreth's  "  apolog>^  for  one  dollar  notes ;"  although  in  Illi- 
nois, under  their  Free  Banking  laws,  the  entire  amount  may  be 
of  the  smaller  denominations,  if  the  parties  choose  to  issue 
them.     The  Newport  Safety  Fund  Bank  has  also  the  privilege 
of  issuing  any  amount  of  small  notes,  signed  by  the  President, 
or  Cashier  only,  and  has  now  in  circulation  $135,000,  with  a 
capital  of  less  tiian  $33,000,-while  for  all  notes  of  five  dollars 
and  upward,  they  are  required  to  deposit  with  tiie  Auditor  of 
State,  bonds  and  mortgages  of  an  equal  amount,  as  security 
forther  redempiion. 


38 

'  Among  the  leading  basiness  men,  and  all  who  have  seriously 
reflected  upon  the  matter,  there  has  been  far  many  years,  a 
decided  opposition  to  the  policy  of  issuing  Bank  notes,  under 
the  denomination  of  five  dollars ;  not  onh*^  as  a  safeguard 
against  the  counterfeit  and  altered  hills,  so  universally  scattered, 
but  as  the  only  method  of  introducing  a  metalic  currency  in 
the  smaller  transactions  of  daily  traffic,  so  much  more  satisfac- 
tory to  all  parties  interested. 

In  the  preceding  remarks,  we  wish  it  to  be  distinctly  under- 
stood, that  we  do  not  advocate  any  system  of  Banking,  because 
it  is  conservative,  as  that  almost  derided  term  is  now  understood, 
but  because  no  better  system  has  yet  been  devised.  The  same 
general  principles  in  regard  to  credit  remain  now  as  flxed,  as 
they  were  a  hundred  years  ago;  viz  :  that  to  deserve  credit,  the 
needful  capital,  the  right  intelligence,  and  well-known  probity 
must  all  be  combined ;  and  without  these,  no  confldence  can  be 
reposed  in  any  promises,  unhesitatingly.  Destitute  of  any  one 
of  these,  the  merchant  may  track  his  devious  way  perhaps  suc- 
cessfully, to  the  attainment  of  wealth,  but  he  will  be  one  of  the 
few,  whom  fortune  favors  :  he  will  owe  his  success  to  accident, 
rather  than  to  merit.  His  enterprises  will  be  those  of  rash  ad- 
venture, and  not  those  of  sound  calculation. 

So  it  is  with  Banks  ;  destitute  of  the  essential  qualifications 
above  stated,  there  can  be  no  permanent  stability,  or  perfect 
confidence  in  a  monetary  institution,  which  has  not  solid  capital, 
discreet  management,  and  a  liberal  policy  with  its  customers. 
Destitute  of  the  latter,  indeed,  no  Banking  establishment  will 
long  be  successful,  whatever  may  be  the  amount  of  its  other 
resources.  In  fact,  the  good  xmtl  of  the  depositors  of  a  Bank  is 
of  more  permanent  value  than  its  capital,  and  instances  might 
be  cited  to  show,  that  depositors  have  oflen  sustained  a  Bank, 
when  its  innate  strength  has  been  suddenly  paralyzed  by  a 
panic,  and  new  vigor  imparted  to  it,  by  the  prompt  aid  of  its 
friends ;  while  others  have  sunk  down  into  hopeless  lethargy, 
and  an  ignoble  death,  without  the  sympathy  of  the  community, 
or  the  regret  of  even  its  adherents. 

Now,  we  ask,  if  the  modern  system  of  Free  Banking,  is  cal- 
culated to  win  the  good  will  of  any  community  ?  A  Bank  may 
commence  its  operations  with  a  cash  capital  of  $100,000,  but 
it  must  instantly  be  invested  in  a  loan  to  a  State,  or  to  the 


United  States,  for  the  full  amount :  or  in  other  words,  it  must 
purchase  the  bonds  of  such  State  or  States,  for  the  full  amount 
of  its  circulation,  on  which  it  depends  for  its  profits.     This  cir- 
culation must  be  issued  far  away  from  the  neighborhood  of  the 
Bank,  otherwise  the  bills  would  instantly  be  returned  there  for 
redemption  in  coin,  which  would  shortly  paralyze  its  opera- 
tions ;  consequently  it  seeks  some  distant  mart,  where  its  bills 
can  intermingle  with  other  currency,  and  take  their  chance  of 
circulation  in  the  great  arteries  of  trade.     The  Banker  then 
will  be  absolved  from  the  restrictions,  which  the  laws  of  the 
State,  under  whose  authority  he  issues  his  paper  promises  to 
pay,  impose,  and  will  feel  himself  at  full  liberty  to  exact  what- 
ever the  factitious  value  of  money  may  be,  whether  it  is  twenty 
or  thirty  per  cent,  per  annum,  instead  of  six  or  seven,  to  which 
it  was    intended    to    confine    him.      Banking  thus  becomes 
"shaving,"  and  it  is  often  worthy  of  a  harsher   appellation, 
"  grindiug,"  when  a  mean  advantage  is  taken  of  the  necessitous. 
Is  such  a  system  likely  to  enlist  sympathy  ?     Is  it  generous  ? 
Is  it  honest?     Volumes  have  been  written  on  the  subject  of 
usury,  and  much  useless  sympathy  wasted  by  philanthropists 
on  this  topic.     We  entertain  the  opinion,  that  money  is  a  mar- 
ketable commodity,  and  should  command  its  intrinsic  worth, 
but  not  its  factitious  valuation.     But  we   maintain  that  these- 
Free  Bank  notes  are  not  money,  nor  are  they  convertible  into- 
money,  without  discount. 

In  a  late  message'  of  Governor  Ford  to  the  Legislature  of 
New  Jersey,  he  says — 

"  The  details  of  the  General  Banking  Act  are  vague,  unsatis- 
factory, and  open  to  a  wide  field  for  abuse.    They  have  already 
been  seized  upon  by  the  speculator,  and  in  many  cases,  our 
Banks,  though  ostensibly  located  in  New  Jersey,  have  their 
whole  business  operations  conducted  by  Brokers  in  other  States. 
The  facility  with  which  they  may  be  organized,  and  located,, 
without  reference  to  the  wants  of  the  community,  or  the  busi- 
ness of  the  place,  is  destructive  to  all  the  ends  of  legitimate- 
Banking.     In  several  instances,  one  or  more  Banks  have  beeni 
located  in  places  difficult  of  access,  and  having  very  little  com- 
munication with  the  improved  and  populous  parts  of  the  State.. 
The  tendency,  if  not  the  design  of  this  practice,  is  to  prevent 
applications,  for  the  redemption  of  the  currency  issued  by  such 


i 


I* 


m 


'i. 

M 

Br  ■* 


40 

Banks,  being  made  at  their  counters,  or  ostensible  places  of 
business :  consequently,  the  notes  are  returned  to  the  large 
cities  on  our  borders,  (whence  they  are  no  doubt  originally 
issued)  and  a  premium  charged  for  their  redemption.  Those 
interested  in  these  operations  reap  a  rich  harvest  of  profit. 
Our  citizens,  however,  for  whose  benefit  the  law  was  enacted, 
suffer  more  or  less  by  the  depreciation  of  the  notes." 

Here  we  have  a  partial  development  of  some  of  the  evils  of 
the  "  Free  Banking  System."  Ought  it  to  claim  public  sym- 
pathy ? 

A  recent  advocate  of  this  system  in  England  (Mr.  Bennoch) 
in  an  essay  entitled  "  Suggestions  for  an  improved  system  of 
Currency  and  Banking,"  proposes  to  abolish  the  use  of  bullion 
as  a  standard  of  value,  and  substitute  two  other  kinds  of  money, 
called  National  and  Commercial.  He  proposes,  accordingly, 
that  the  National  currency  should  be  issued  by  the  Government, 
and  be  based  upon  the  amount  of  National  taxation ;  and  the 
Commercial  currency  be  issued  by  individuals,  and  be  based  on 
the  securities  deposited  with  the  Government,  with  the  power 
of  sale  of  such  securities,  if  the  Bank  proved  insolvent.  Two 
kinds  of  money  are  thus  proposed,  and  the  balances  of  the  foreign 
trade  be  discharged  by  bullion.  "  Gold  would  then,"  he  says, 
"  have  only  one  function  to  discharge,  instead  of  two,  and  thus 
its  use  be  economized.  Panics  never  would  occur,  and  we 
should  never  hear  of  gloom  in  the  city,  when  Gold  lefl  the  coun- 
try, for  when  it  did  go,  it  would  go  as  a  Commodity,  instead  of 
for  its  fixed  mint  price." 

When  "  the  fast  anchored  isle"  slips  from  her  moorings,  and 
drifts  across  the  broad  Atlantic  to  "  annex  "  herself  to  our  giant 
Republic,  we  shall  begin  to  think  that  honest  John  Bull  has 
eradicated  his  ancient  prejudices,  and  lost  his  love  of  gold,  as 
well  as  his  relish  for  roast  beef.  But,  meanwhile,  we  imagine, 
that  the  "  bullionists  "  will  maintain  their  supremacy  in  Thread- 
needle  and  Lombard  streets,  and  the  country  at  large  be  con- 
tent with  the  liberal  supply  of  national  paper,  called  Consols 
and  Exchequer  bills,  retaining  their  Gold  to  make  small  change 
with. 

In  our  own  country,  we  have  tried  this  National  currency  in 
the  shape  of  Treasury  notes,  which  were  never  at  par,  but 
while  "  old  Bullion  "  lives,  or  the  Sub  Treasury  can  accumulate 


its  golden  hoard,  with  Government  retainers  to  watch  it,  a  Na- 
tional paper  currency  will  find  few  advocates  among  the  present 
dominant  party  of  our  Union .  If  indeed,  our  Government  would 
liberate  their  golden  eagles  from  captivity,  and  substitute  Ex- 
chequer bills  for  their  disbursements,  our  Exchanges  would  re- 
main more  steady,  and  many  financial  difficulties  be  obviated, 
which  now  unnecessarily  exist.  To  this  extent,  we  are  the  ad- 
vocates of  Mr.  Bennoch's  system  of  a  National  currency,  limited 
in  amount  to  the  Treasury  estimates  of  our  annual  revenue. 

In  the  financial  history  of  the  United  States,  there  have  been 
three  epochs  in  Banking  operations:    the  first,  commencing 
with  the  early  institutions  after  the  close  of  our  Revolutionary 
war,  and  extending  to  the  peace  of  1815 ;  the  next,  from  the 
establishment, of  the  second  United  States  Bank  in  1816,  and 
closing  with  its  impolitic  termination  in  1836,  and  the  subse- 
quent general  suspension  of  the  local  Banks  in  1837 ;  and  the 
third,  from  the  resumption  of  specie  payments  in  1838,  to  the 
present  date.     During  the  latter  interval  of  sixteen  years  only, 
more  experiments  have  been  tried,  than  were  even  suggested 
by  the  sound  practical  sense  of  the  preceding  half  century  ;  and 
the  first  results  were  illustrated  in  the  suspension  of  specie  pay- 
ments by  most  of  the  Banks,  South  and  West  of  New  York,  as 
we  have  before  stated.     Causes  were  assigned  for  this,  as  va- 
rious as  the  caprices  of  individuals  could  suggest ;  but  it  was 
as  evident  then,  as  it  is  now,  that  the  operations  of  local  Banks 
scattered  throughout  our  land,  cannot  be  restrained  within  pro- 
per limits,  unless  by  some  controling  power,  which  can  exer- 
cise a  proper  influence,  and  prevent  them  from  running  into 
excess,  to  the  common  detriment  of  all. 

Still,  however,  the  experiments  go  on.  Our  strong  frame, 
iron  constitution,  and  elastic  spirits,  have  survived  quackery, 
and  every  variety  of  nostrums,  which  "  the  currency  tinkers  " 
have  prescribed,  and  now  following  the  example  of  New  York, 
many  of  the  States  have  caught  the  mania  of  Free  Banking,  as 
the  only  safe  system,  and  Banks  are  increasing  in  number  so 
rapidly,  that  without  a  pocket  map  to  discover  their  locality,  it 
would  be  difficult  to  ascertain  where  to  go  for  the  money,  which 
they  promise  to  pay  on  their  pictorial  slips.  The  only  classes 
of  the  community,  who  are  benefited  by  these  operations,  that 
we  know  of,  are  the  utterers  of  these  Bank  notes,  and  the 
6 


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42 

engravers  and  paper  makers.  The  public  at  large,  however, 
unfortunately  have  to  pay  for  these  pleasing  specimens  of  art ; 
some  in  the  shape  of  a  large  percentage  on  discounted  paper, 
others  in  the  form  of  a  discount  on  these  Bank  notes  for  con- 
version into  real  money,  and  perhaps  others  may  be  compelled 
to  await  their  liquidation  by  the  Auditors  of  States. 

The  unjust  Bank  Tax  Act  of  the  State  of  Ohio,  has  had  a 
most  pernicious  influence  in  aggravating  the  monetary  distem- 
per, now  prevalent  in  the  adjoining  States  of  Indiana  and  Illi- 
nois, and  its  effects  will  speedily  be  felt  in  all  the  departments 
of  trade  in  Ohio,  as  well  as  the  utter  disappointment  of  her 
vulture-like  rapacity  for  the  very  entrails  of  her  Banks.  Instead 
of  deriving  the  reasonable  amount  of  revenue,  which  equitable 
laws  would  impose  upon  an  increasing  amount  of  Bank  capital, 
she  will  find  that  the  forty  branches  of  her  State  Bank  have 
transferred  their  Discount  Books  to  Indiana,  and  that  their  ope- 
rations at  home,  have  been  limited  to  the  exact  amount  of  their 
capital.  Indeed  we  see  no  alternative  for  them  to  pursue, 
without  an  utter  disregard  of  their  ow^n  pecuniary  interests. 

The  inevitable  tendency  of  the  present  policy  of  Ohio,  is  to 
destroy  all  her  incorporated  Banks,  and  to  substitute  therefor 
the  financial  agency  of  private  Bankers,  who  will  be  independ- 
ent of  any  restrictions  in  their  rates  of  discount,  and  amenable 
to  no  laws,  but  those  of  conscience.  And  as  the  idea  of  a 
metalic  currency  is  too  preposterous  to  be  entertained  for  one 
moment,  the  trading  community  will  be  supplied  with  the  Bank 
notes  of  other  States,  who  will  reap  the  profit,  thus  recklessly 
cast  into  their  treasuries. 

But  what  is  to  be  the  final  issue  of  this  "  Free  Banking  sys- 
tem"? It  is  obvious,  that  the  practical  operation  of  this  illusive 
scheme,  is  to  allow  single  individuals,  or  an  unlimited  number 
of  associations  to  engage  in  the  "  Banking"  business,  and  to  issue 
Bank  notes,  for  the  full  amount,  for  which  they  deposit  with  the 
Auditors,  State  Stocks,  as  collateral  securities.  Nominally  con^ 
fined  to  the  localities,  where  their  Bank  notes  are  dated,  the  scene 
of  their  Banking  operations  will  be  beyond  the  limits  of  the 
State,  from  which  they  derive  their  power,  and  the  public  have 
only  to  presume,  for  they  cannot  know,  that  this  multinomial 
currency  is  all  secured,  as  the  Register's  signature  certifies. 
But  how  secured  ?    By  the  pledge  of  Indiana  five  per  cent. 


4S 


Stocks,  for  instance,  worth  at  the  present  moment  98  cents  on 
the  dollar  in  New  York.  Now  let  us  suppose  that  ten  of  these 
new  Banks,  each  starting  with  a  capital  of  $50,000,  should  all 
increase  their  circulation  to  $500,000,  (as  they  have  the  power 
to  do,  and  with  adroit  management  can  obtain  the  means  there- 
for,) the  public  would  then  become  their  creditors  for  five  mil- 
lions of  dollars.  Let  us  further  suppose  that  one  of  the  ten 
Banking  concerns  was  unfortunate  in  its  operations,  and  be- 
came embarrassed  by  the  delinquency  of  its  discounted  paper, 
so  that  its  notes  were  sent  home  for  redemption,  faster  than  its 
collections  would  supply  them  with  resources;  the  inevitable 
consequence  would  be,  that  unfavorable  rumors  would  be  circu- 
lated, and  a  run  would  commence  upon  the  Bank,  which  would 
drive  it  into  liquidation.  But  the  mischief  would  not  be  con- 
fined to  one  institution  only ;  if  there  was  a  continued  pressure 
on  the  money  market,  or  a  casual  panic,  the  alarm  would  ex- 
tend in  relation  to  the  whole  class  of  similar  Banks,  and  proba- 
bly most  of  them  would  share  a  similar  fate.  In  such  a  period 
of  gloom,  what  would  then  be  the  cash  value  of  five  millions  of 
Indiana  Rve  per  cent.  Stocks  in  the  New  York  market,  and 
how  soon  could  such  an  amount  be  disposed  of?  A  moment's 
reflection  will  convince  us,  that  the  bills  of  all  such  Banking 
concerns  would  immediately  depreciate,  and  the  community 
would  be  the  sufferers  to  the  amount  of  the  discount,  or  be 
compelled  to  await  the  final  liquidation. 

But  there  is  another  objection  to  this  system.  It  authorizes 
a  single  individual  to  exercise  the  combined  functions  of  Presi- 
dent, Directors  and  Company  of  one  of  the  incorporated  Banks, 
under  the  former  laws,  and  to  convert  established  Banking 
privileges  into  a  vague  and  unrestricted  system  of  money 
trading,  shaving  and  extortion.  There  is  surely  less  security 
in  this  description  of  business,  than  in  legitimate  Banking,  for 
generally  speaking,  it  will  be  principally  confined  to  needy, 
speculative  and  bold  operators,  who  are  always  ready  to  pay 
high  rates  for  money,  and  are  generally  the  most  plausible  in 
their  expositions  of  securities. 

In  our  commercial  communities,  it  is  a  familiar  fact,  that  a 
very  large  proportion  of  those  who  embark  in  trade,  ultimately 
become  bankrupt,  and  every  one  who  has  been  in  business 
twenty  years,  has  had  ample  experience  of  th«  fact.    Now  as 


'.■!-,i.j.  Hjm  -'  -*-iJ 


|!  "I 


V 


llliHi 


44 

Banking  institutions  embark  nearly  double  the  amount  of  their 
own  capital  in  the  business  notes,  which  are  discounted,  it  ne- 
cessarily requires  unceasing  vigilance  to  avoid  the  hazards,  to 
which  they  are  constantly  exposed.  The  means  of  informa- 
tion, which  any  single  individual  possesses,  however  wide  may 
be  the  circle  of  his  acquaintance,  or  diversified  his  sources  of 
information,  cannot  be  commensurate  with  those  possessed  by 
men  of  intelligence,  who  are  engaged  in  the  busy  haunts  of 
trade,  and  are  constantly  on  the  alert,  to  watch  the  changes  of 
the  market,  the  rise  and  fall  of  merchandise,  and  their  effects 
upon  the  fortunes  of  their  competitors.  Hence  a  Board  of  Di- 
rectors has  always  been  regarded  as  one  of  the  essential  requi- 
sites of  a  Bank,  and  on  their  respectability  and  character,  the 
reputation  of  the  institution  mainly  depends.  Why  then  dis- 
pense with  this  safeguard  ?  The  answer  is  obvious  :  designing 
operators  wish  to  exercise  supreme  control  over  the  Bank 
movements,  and  keep  their  own  dark  counsels,  and  schemes, 
aloof  from  public  scrutiny  or  knowledge. 

But  we  have  still  another  objection  to  this  one  man  power. 
Human  life  is  of  so  uncertain  tenure,  and  where  the  functions  of 
a  monied  institution  are  vested  in  a  single  individual,  there  is 
obvious  insecurity  in  its  promises.  In  England,  all  the  large 
Banking  Houses  have  from  three  to  six  partners  in  the  concern, 
to  guard  against  this  very  contingency,  and  no  monetary  estab- 
lishment is  entitled  to. entire  confidence,  where  the  loss  of  a 
single  life  would  suspend  its  operations,  even  for  a  day. 

But  aside  from  the  uncertainty  of  human  life,  there  are  also 
the  vicissitudes  of  business  to  be  guarded  against.  The  Banker, 
who  has  embarked  his  tlfty  or  hundred  thousand  dollars  in  this 
business,  will  be  likely  to  extend  his  operations-  into  other  de- 
partments of  trade,  and  in  the  event  of  failure,  all  his  liabilities 
would  share  a  common  fate.  The  Massillon  Bank  suspension 
is  a  case  in  point:  the  principal,  or  controlling  stockholder 
failed,  in  New  York,  and  with  his  downfall,  that  of  the  Bank 
followed.  Neither  the  President,  nor  Cashier  had  the  requisite 
funds,  under  their  control,  to  sustain  it,  nor  was  there  an  effi- 
cient and  independent  Board  of  Directors  to  aid  them  in  their 
emergency.  But  with  the  New  York  manager,  the  whole 
amount  of  their  Bank  circulation  fell  like  a  dead  weight  upon 
the  community;  perhaps  never  to  rise  again.    Would  any 


4ft 

prudent  man  deposit  his  funds,  in  such  a  frangible  institution  ? 
But  further :  one  of  the  primary  purposes  of  the  establish- 
ment of  Banks,  was  to  provide  for  the  secure  investment  of 
trust  funds,  belonging  to  widows  and  orphans,  from  which  they 
might  derive  a  sure  and  regular  income.     Aided  by  the  services 
of  intelligent  atid  prudent  Directors,  Banks  have  always  yielded 
the  most  uniform  dividends,  and  when  their  capitals  have  been 
derived   from  such  sources,  their  stocks  have  maintained  an 
uniform  market  value,  because  they  have  no  needy  stockhold- 
ers to  uphold,  or  cormorants  to  satiate.     Confining  themselves 
to  the  legitimate  business  of  Banking,  they  loan  their  capital 
stock  to  responsible  parties,  and  grant  all  the  additional  accom- 
modations to  their  customers,  which  the  surplus  funds  of  their 
permanent  depositors  may  regularly  supply.     Such  institutions 
command  the  confidence  of  the  community,  and  need  no  ad- 
ventitious aid  to  sustain  their  strength,  or  security.     Contrast 
an  institution  of  this  character,  with  one  which  is  managed  by 
an  individual  Banker,  on  his  own  account.    The  one  is  a  gallant 
ship,  skillfully  laden,  ably  commanded,  fully  manned,  and  thor- 
oughly equipped,  to  encounter  the  perils  of  the  mighty  deep, 
and  almost  suce  to  arrive  at '  her  destined  port  ;■ — the  other,  is 
an  SBronautic  expedition  for  the  same  destination ;  its  means 
of  transit,  a  balloon,  guided  by  a  single  hand  ;  its  momentum, 
expansion ;  its  course,  erratic  and  uncontrollable ;  and  its  dan- 
gers, exhaustion  or  explosion.    It  need  not  to  be  asked,  which 
is  the  safer  vessel  of  the  two.      • 

We  are  aware  that  we  are  pursuing  an  unprofitable  theme, 
since  the  popular  sentiment  of  this  section  of  our  country  has 
been  driven  into  the  current  of  Free  Banking,  following  the 
lead  of  New  York.  In  that  proud  State,  there  are  nearly  three 
hundred  Banks,  forty-three  of  which  are  individual  establish- 
ments, in  the  interior  towns,  and  mostly  with  small  capitals. 
And  Indiana  and  Illinois  will  probably  furnish  the  West  with 
a  similar  proportion  of  this  kind  of  Bank  note  paper. 

Now,  it  is  somewhat  remarkable,  that  while  in  all  the  promi- 
nent departments  of  business; — our  Railroads,  Manufacturing 
establishments,  Insurance  companies,  and  other  associations, — 
Boards  of  Directors  are  regarded  as  indispensable  for  the  man- 
agement of  affairs ;  yet  in  Banks,  which  so  directly  aflfect  the 
interests  of  a  whole  community,  and  whose  movements  ought 


\ 


ill 


46 

to  be  characterized  by  sagacity,  discretion,  and  a  prudent  liber- 
ality ;  the  aid  of  an  advisory  Board  should  be  dispensed  with, 
and  all  the  influence  of  a  Banking  institution,  be  entrusted  to 
a  single  individual,  whose  caprice  might  exercise  a  despotic 
sway  over  the  fortunes  of  his  dependents. 

And  while  we  are  on  this  subject  of  Bank  direction,  we 
would  suggest,  that  there  might  be  a  radical  improvement  in- 
troduced, by  the  reasonable  payment  for  the  services  of  Bank 
Directors,  etc. 

A  somewhat  extended  familiarity  with  the  gratuitous  labor 
in  Banks,  Insurance  ofl[ices  and  Manufacturing  corporations,* 
has  taught  us  the  value  of  the  time,  and  responsibility,  which 
have  for  several  years  been  freely  bestowed,  in  the  manage- 
ment of  the  affairs  of  productive  establishments,  and  we  have 
never  discovered  any  reason,  why  the  most  precious  hours  of  a 
merchant's  daily  life,  should  be  gratuitously  devoted  to  the 
benefit  of  others,  even  at  the  sacrifice  of  his  own  interests, 
when  the  time  of  other  professions  is  so  liberally  compensated, 
The  financial  concerns  of  a  whole  community  are  more  impor- 
tant than  the  title  of  an  estate,  or  the  health  of  a  patient ;  and 
yet  we  bestow  liberal  fees  upon  the  guardians  of  the  two  latter, 
while  the  Bank  Director  is  regarded  as  amply  compensated,  by 
the  empty  honor.  But  if  the  subject  was  regarded  in  its  true 
light,  it  would  at  once  be  perceived,  that  if  Directors  were  paid 
for  their  services,  they  would  be  under  greater  responsibility  to 
render  prompt  and  constant  attendance  at  the  meetings  of  the 
Board,  and  the  stockholders  would  have  stronger  claims  on 
their  services.  What  is  true  in  regard  to  Banks,  is  equally 
valid  in  relation  to  Insurance,  Manufacturing,  and  Railroad 
corporations,  and  in  fact,  in  relation  to  any  association,  whose 
object  is  pecuniary  profit. 

With  every  successive  year,  the  varied  interests  of  trade  in 
the  widely  scattered  sections  of  our  country  become  more  and 
more  complicated,  and  it  is  obvious  that  those  of  our  merchants, 
and  capitalists,  who  can  give  the  tone  to  public  opinion,  should 
furnish  the  community  with  the  aid  of  their  past  experience, 
instead  of  looking  on  supinely,  without  a  warning  voice  to  ap- 
prise us  of  our  near  approach  to  a  vortex ;  for  in  that  light  we 
regard  the  increasing  multiplicity  of  Free  Banks,  with  small 
capitals,  and  without  Directors. 


47 

Since,  however,  the  trading  community  have  become  en- 
tangled in  the  meshes  of  a  heterogeneous  currency,  it  is  incum- 
bent on  them  to  guard  against  involvedness  and  sudden  sur- 
prises, as  well  as  to  warn  the  unwary  of  the  jeopardy.  And 
we  shall  now  consider  how  this  may  be  accomplished. 

There  seems  to  be  but  one  direct  method  of  effecting  this 
desirable  object,  and  it  might  result  favorably  to  the  interests 
of  all  parties,  the  issuers,  and  the  holders  of  these  Bank  notes. 

Experience  has  taught  the  community,  that  in  consequence 
of  the  rivalry  of  small  Banks,  there  is  an  urgent  importunity 
^n  behalf  of  interested  parties  to  secure  the  circulation  of  their 
Bank  notes,  wherever  negotiable  paper  or  convertible  securities 
can  be  exchanged  therefor.  The  questions  asked  by  such 
financiers,  are  primarily,  if  a  good  circulation  can  be  assured  ; 
secondly,  the  rate  of  exaction,  to  which  the  parties  are  willing 
to  submit;  and  thirdly,  the  character  of  the  paper  to  be  pro- 
posed ; — thus  reversing  the  true  order  of  inquiry.  But  who  are 
the  parties  ?  Probably,  a  speculative  Banker,  preying  upon 
the  necessities  of  some  bold  operator,  whose  transactions  re- 
quire an  unceasing  supply,  and  outlay  of  Bank  notes.  Or  per- 
haps some  of  our  modern  Railroad  contractors  come  forward, 
and  with  one  fell  swoop,  absorb  the  circulation  of  a  dozen  of 
these  trading  Banks,  and  thus  furnish  them  with  the  means  to 
procure  an  additional  supply  of  Bank  note  paper.  By  these 
simple  operations,  the  country  is  soon  inundated  with  a  multi- 
farious currency,  which  in  the  natural  course  of  trade,  soon 
finds  its  way  into  the  larger  towns  and  cities,  and  is  then  either 
sold  at  a  discount,  if  remote  from  the  point  whence  it  was 
issued,  or  sent  home  for  redemption.  Now,  if  the  Free  Banks, 
which  are  coming  into  operation,  would  agree  to  redeem  their 
bills,  at  the  central  point  of  trade  in  the  States  where  they  are 
located,  it  would  enhance  their  reputation  with  the  community, 
and  render  their  circulation  more  uniform  and  permanent.  Be- 
sides, the  public  generously  receive  these  bills,  as  the  repre- 
sentatives of  Specie,  and  have  a  correlative  claim  for  their  easy 
conversion  into  Coin.  If,  then,  the  Banks  of  Indiana  and  Illi- 
nois, would  make  provision  for  the  redemption  of  their  notes  at 
Indianapolis  and  Springfield,  or  Chicago,  instead  of  the  scat- 
tered villages  or  towns,  whence  they  are  now  nominally  issued, 
all  reasonable  facilities  would  thereby  be  afforded,  for  their 


/ 


48 

redemption,  and  then  would  attain  a  wider  circalation,  and  be 
justly  entitled  to  more  confidence  in  the  community.  They 
would  then  command  the  Specie  in  Cincinnati  at  a  much  lower 
rate  of  exchange,  than  is  now  demanded,  and  the  Banks  them- 
selves would  be  exempt  from  much  needless  expense  in  the 
transportation  of  Specie,  to  which  they  are  now  unavoidably 
liable.  It  would  furthermore  be  the  first  step  in  the  Western 
States,  toward  the  introduction  of  the  Suflfolk  Bank  system,  so 
long  in  vogue  in  New  England,  and  might  hereafter  lead  to  an 
equalization  of  the  currency  throughout  the  entire  Western 
country,  and  the  abolishment  of  the  present  distinction  betweei^ 
par  and  current  funds. 

The  concerted  action  of  a  few  leading  Bankers  in  the  two 
States  of  Ohio  and  Kentucky,  (whose  interests  would  be  di- 
rectly promoted  by  the  arrangement,)  and  whose  influence 
would  be  rightly  appreciated  by  the  Bankers  in  Indiana,  Illinois 
and  Michigan,  might  readily  effect  this  object.  We  may  even 
go  further,  and  state,  that  in  the  city  of  Cincinnati  alone,  there 
are  Banking  establishments,  which  could  constrain  these  pre- 
liminary measures  of  uniformity  in  the  currency,  as  easily  as 
the  originators  of  the  Suffolk  Bank  system  compelled  one  Bank 
after  another  in  New  England  to  adopt  their  system  of  equali- 
zation. In  its  early  stages,  the  project  was  denounced,  and  vio- 
lently opposed  by  interested  parties,  who  had  gorged  the  chan- 
nels of  trade  with  their  Bank  notes ;  but  a  discriminating  com- 
munity soon  appreciated  the  advantages  they  derived  from  the 
arrangement,  and  finally  nearly  all  the  Banks  became  partiea 
thereto. 

This  system  is  the  most  perfect  one,  in  our  country,  and 
quite  equal  to  that  of  Scotland — the  peculiar  feature,  and  chief 
excellency  of  which  is,  semi-weekly  Exchanges.  By  this  ar- 
rangement, the  over  issues  of  any  Bank  are  returned  upon  it, 
in  a  manner  and  in  so  short  a  time,  as  to  remove  all  induce- 
ments to  over-trade.  The  exchanges  are  effected  in  Edin- 
burgh, where  a  general  adjustment  takes  place  twice  a  week, 
and  any  Bank  refusing  to  exchange,  would  lose  its  credit  at 
once.  Each  Bank  receives  in  payment  the  notes  of  all  others 
in  good  credit,  but  it  pays  out  none  but  its  own,  in  the  way  of 
business.  All  that  it  receives,  are  promptly  forwarded  for 
payment,  and  are  not  allowed,  as  in  this  country,  to  circulate 


h  ! 


49 

4 

from  hand  to  hand  to  an  unknown  amount,  and  for  an  indefi- 
nite period.  Thus  the  notes  of  one  Bank  in  Scotland  are  as 
good  as  those  of  another,  because  every  Bank  readily  takes 
them  and  turns  them  into  money,  by  the  semi-weekly  exchange  ; 
and  consequently  there  is  no  distrust:  the  circulation  is 
very  large,  and  each  Bank  enjoys  precisely  the  proportion 
thereof,  which  the  business  of  its  section  of  the  country  will 
support.  We  are  not  sanguine  enough  to  suppose,  that  either 
of  these  systems  can  be  adopted  in  the  Western  States,  under 
the  present  Banking  laws ;  but  while  they  allow  such  extended 
privileges,  the  community  have  a  right  to  require  greater  facili- 
ties for  obtaining  the  coin,  for  these  notes  at  some  central  point, 
instead  of  traversing  an  entire  State,  to  collect  a  few  hundred 
dollars.  The  systematized  plans,  and  combined  efforts  of  two 
or  three  leading  Bankers,  could  coerce  these  scattered  Banks 
into  some  arrangements  for  a  more  convenient  point  of  redemp- 
tion, than  the  law  provides ;  and  although,  in  the  onset,  it 
might  be  opposed  by  caprice,  or  selfishness,  yet  in  the  end,  the 
plan  would  be  found  more  advantageous  to  all  parties. 

It  is  recorded  of  the  late  Samuel  Ward,  Esq.  (the  former 
President  of  the  Bank  of  Commerce,  in  New  York,)  that  his 
indomitable  and  persevering  exertions  resisted  the  suspension  of 
specie  payments  in  1839,  when  the  Banks  of  Pennsylvania  and 
those  of  all  the  States,  south  and  west  thereof,  suspended,  and 
clamors,  almost  amounting  to  menace,  were  heard  against  the 
declared  purpose  of  the  New  York  Banks,  to  maintain  at  all 
hazards,  their  specie  payments.  Mr.  Ward  threw  himself  at 
once  into  the  conflict,  sustained  and  encouraged  the  timid  and 
doubting,  "  willing  that  his  exhausted  frame  should  be  sacrificed, 
if  by  word  or  deed,  he  could  aid  the  Banks  in  adhering  faithfully 
to  their  duty."  "And  when  at  last,  he  saw  that  it  was  accom- 
plished,  and  that  the  honor  and  fair  fame  of  the  much  loved 
City,  in  which,  and  with  which,  he  had  grown  from  boyhood  to 
mature  age,  were  to  be  inviolably  maintained,  he  went  home 
to  die.  It  was  literally  so  :  the  bed  which  received  him,  after 
the  accomplishment  of  this  his  last  labor,  he  never  again  left 
alive."  Here  was  a  noble  instance  of  a  single  mind  acting 
upon  a  large  community,  during  the  most  perilous  period  of  our 
commercial  history,  and  successfully  accomplishing  the  main- 
tenance of  our  public  credit,  by  persuading  the  Banks  to  redeem 
7 


• 


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50 

• 

their  promises  with  a  specie  equivalent.  At  this  critical  junc- 
ture, there  were  about  350  Banks  in  New  York  and  New  Eng- 
land, whose  aggregate  circulation  amounted  to  over  twenty -five 
and  a  half  millions  of  dollars,  and  this  was  promptly  redeemed 
in  Coin,  on  presentation ;  but  nearly  three  years  elapsed,  before 
the  suspended  Banks  resumed  specie  payments  in  the  other 
States.  By  this  one  single  act,  Mr.  Ward  bequeathed  to  all 
Bankers,  a  noble  example  of  self-sacrifice  and  perseverance ; 
and  it  should  induce  others,  who  occupy  prominent  positions  in 
monetary  aftairs,  to  exert  a  similar  influence  in  checking  the 
eff'usion  of  Bank  notes,  which  now  threaten  to  overwhelm  us 
in  the  West,  in  the  shape  of  Indiana  currency,  unless  some 
counteractive  influence  is  exerted,  to  secure  and  enforce  a  more 
summary  specie  redemption.  At  the  present  moment,  the 
popular  sentiment  in  Ohio,  welcomes  this  accession  of  cur- 
rency, as  ^an  immediate  relief,  in  these  exigent  times  ;  but  we 
fear  that  this  circumstance,  will  stimulate  over- Banking  in  In- 
diana, and  will  create  an  undue  proportion  of  paper  to  specie, 
and  cause  over-trading,  over-production,  and  over-action  in  all 
the  departments  of  trade.  If  this  just  proportion  of  specie  to 
paper  is  derided,  and  Gold  is  in  requisition  to  pay  our  foreign 
balances,  this  increase  of  paper  circulation  will  prove  a  most 
delusive  policy. 

But  the  advocates  of  this  Free  Banking  system  maintain, 
that  in  any  emergency,  the  bill  holders  are  secure,  because 
public  Stocks  are  pledged  for  the  final  redemption  of  these  bills. 
We  answer  in  the  words  of  Mr.  Webster,  "  no  solidity  of  funds, 
no  sufficiency  of  assets,  no  confidence  in  the  solvency  of  Bank- 
ing institutions,  has  ever  enabled  them  to  keep  up  their  paper 
to  the  value  of  Gold  and  Silver,  any  longer  than  they  paid  Gold 
and  Silver,  on  demand.  This  will  continue  to  be  the  case,  so 
long  as  those  metals  shall  continue  to  be  the  standard  of  value, 
and  the  general  circulating  medium,  among  nations."  And 
further,  •' The  credit  and  circulation  of  Bank  paper  are  the 
.effects,  rather  than  the  causes  of  a  profitable  commerce,  and  a 
well-ordered  system  of  finance.  They  are  the  props  of  na- 
tional wealth  and  prosperity,  not  the  foundation  of  them." 

"  The  office  of  a  well-regulated  currency,^^  says  the  London 
Spectator,  "  is  not  to  replace  the  capital,  which  has  been  lost, 
or  to  restore  confidence  which  has  been  shaken,  or  to  inspire 


I 


51 

it,  when  it  is  not  due ;  but  only  to  furnish  that  which  is  a  trust- 
worthy and  convenient  medium  of  exchange,  for  mercantile 
transactions,  both  foreign  and  domestic.  No  panic  can  be  ar- 
rested, by  the  legerdemain  trick  of  issuing  Bank  promises  to 
pay,  without  Uie  wherewithal  to  keep  the  promise." 

And  yet  we  see,  that  when  currency  is  scarce,  the  common 
impression  is,  that  it  is  the  duty  of  the  Banks  to  issue,  more  to 
supply  the  deficiency.  Such  a  course  would  be  suicidal — the 
iaws  of  trade  determine  the  amount  of  currency,  which  can  be 
kept  in  circulation,  and  any  attempt  to  over-leap  these  pre- 
€cribed  limits,  would  only  aggravate,  not  alleviate  the  evils, 
which  may  temporarily  exist. 

But  how  is  thh  ^^  well-regulated  currency ''''  io  be  managed? 
By  a  thousand  different  individuals,  in  different  parts  cf  the 
country,  having  no  connection  with  each  other ;  no  concert  of 
action,  no  unity  of  purpose  ?  On  the  contrary,  are  they  not 
antagonistic  in  their  influences  and  operations,  each  striving 
to  enlarge  his  sphere  of  action,  without  reference  to  the  gene- 
ral condition  of  trade  ? 

But  let  us  take  another  view  of  this  subject.  The  amount 
of  currency  issued  by  the  Banking  associations  and  Bankers  in 
the  United  States  is  estimated  at  $180,000,000.  If  this  amount 
was  all  predicated  upon  the  deposit  of  State  Stocks,  it  would 
nearly  absorb  the  bonds  of  all  the  States  in  our  Union-  Many 
of  these  States  are  already  preparing  to  pay  their  bonds  at  ma- 
turity, and  avoid  any  further  indebtedness.  The  surplus  revenue 
of  the  United  States  is  even  now  partially  appropriated  to  the 
anticipatory  payment  of  all  the  bonds,  which  can  be  purchased 
under  certain  limits,  and  this  source  of  supply  will  probably 
«oon  cease.  The  State  of  Ohio  is  preparing  to  pay  its  bonds 
due  in  1857;  and  Indiana,  those  due  in  1860;  and  this  policy 
will  probably  be  adopted  by  many  of  the  other  States,  as  their 
bonds  become  due.  As  the  trade  of  the  country  enlarges,  an 
additional  amount  of  currency  will  be  required,  and  a  corres- 
ponding deficiency  of  State  bonds  will  exist.  What  then  will 
be  the  basis  of  circulation?  Already  Railroad  bonds,  City 
bonds,  and  mortgages  on  real  estate  have  been  proposed  as 
substitutes,  and  at  the  last,  we  may  come  down  to  Insurance 
stocks,  or  even  Manufacturing  corporations,  for  the  requisite 
materials,  to  furnish  the  basis  for  our  Bank  note  paper.     A  sys- 


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52 

tem,  which  is  constructed  upon  such  a  shifting  foundation,  is 
delusive,  and  if  generally  adopted  by  the  other  States,  it  will 
convert  every  Broker's  office  into  a  Bank  of  issue,  and  their 
number  will  be  as  indefinite  as  the  stars  in  our  firmament. 
Besides,  what  good  reason  can  be  given  for  the  substitution  of 
private  Bankers'  paper,  for  the  notes  of  wealthy,  consolidated 
Banking  corporations,  who  have  steadfastly  redeemed  their 
promises,  and  furnished  to  the  community  all  the  facilities,  which 
common  prudence  would  allow  ?  This  quesUon  is  more  easily 
asked,  than  satisfactorily  answered. 

Any  one  conversant  with  the  materiel,  of  which  the  popular 
branches  of  our  Legislatures  are  constituted,  will  understand 
the  solution  of  this  problem.  Men  of  honest  intentions,  but  of 
weak  calibre,  sit  in  grave  deliberations  to  decide  upon  momen- 
tous questions,  and  their  votes  are  often  determined,  not  by  the 
arguments,  which  are  uttered  on  the  floors  of  the  Legislatures, 
but  by  that  pernicious  influence,  which  "Lobby  members"  in- 
sidiously exert;  and  even  our  National  Congress  is  not  exempt 
from  this  extraneous  interference.  Self-interest,  cupidity,  and 
personal  ambition  exercise  a  more  powerful  sway  over  the 
votes  of  members,  than  the  sovereign  people  are  aware  of:  and 
hence  the  constant  changes  in  our  Legislation,  and  the  frequent 
amendments  of  the  acts  of  our  lawgivers.  When  any  measure 
does  not  quite  answer  the  purposes  of  its  originators,  it  will  be 
passed  through  such  manifold  mutations,  to  mould  it  into  its  de- 
sired shape,  that  its  original  form  can  hardly  be  traced,  after 
its  final  "amendments"  have  been  superadded.  Who,  for  in- 
stance, could  imagine  that  a  Savings  Institution,  with  a  capital 
of  $50,000,  made  up  of  small  deposits,  of  one,  two,  and  three 
dollars,  could  be  converted  into  a  mammoth  Banking  associa- 
tion, with  Trust  powers,  and  with  an  unlimited  Banking  capital 
for  issue,  discount,  and  deposit,  and  a  perpetual  charter  ?  And 
yet  this  has  been  done  within  fiwe  years,  in  a  State,  which 
possesses  an  unexceptionable  Banking  Code,  and  whose  Banks 
are  entitled  to  as  high  a  credit,  as  any  in  the  Western  country. 

But  still  further.  We  all  know,  that  most  of  these  modem 
Free  Banking  concerns,  particularly  in  the  West,  are  the  pro- 
perty of  parties,  who  embark  all  the  means  they  possess,  or  can 
obtain,  in  the  enterprise ;  and  invest  the  whole  amount  in  State 
Stocks,  on  which  they  receive  the  regular  interest.    They  have 


53 

no  other  other  funds  to  loan,  excepting  their  own  Bank  paper ; 
and  unless  the  public  are  willing  to  accept  this  in  lieu  of  money, 
their  means  of  usefulness  are  at  an  end.  Speculators  and 
needy  operators  are  the  only  parties,  who  will  be  induced  to 
apply  fur  these  notes,  and  through  their  agency,  these  duplicate 
repres-cntments  of  State  debts  assume  the  form  of  currency, 
and  silently  and  gradually  intermingle  with  the  general  circula- 
tion. While  the  channels  of  trade  are  deprived  of  the  use  of  a 
sound  currency,  this  second-rate  paper  will  usurp  its  place,  and 
supply  the  vacuum;  but  if  wiser  counsels  should  ultimately 
prevail,  and  encouragement  again  be  given  to  capital,  these 
mushroom  symbols  of  money  would  quickly  be  driven  home 
for  redemption,  and  extinction.  One  energetic  Broker,  with 
ample  pecuniary  means,  might  successively  paralyze  the  opera- 
tions of  all  the  small  Free  Banks  in  Indiana,  and  without  any 
very  extraordinary  eflibrt,  compel  them  to  redeem  their  paper, 
as  fast  as  it  was  issued.  Nor  would  this  be  harsh  treatment : 
there  is  no  more  reason,  why  a  single  Individual  should  issue 
$100,000  of  his  notes,  as  currency,  because  he  is  the  owner  of 
an  equal  amount  of  State  bonds,  than  that  another  person 
should  have  the  same  privilege,  who  holds  a  like  amount  in 
Railroads  or  real  estate  :  indeed  the  latter  might  be  the  more 
readily  convertible  into  money,  than  the  State  bonds. 

Banks,  which  are  created  for  the  sole  purpose  of  making 
money  out  of  their  circulation,  have  no  claims  upon  the  indul- 
gence of  a  community,  who  have  become  bewildered  with  the 
daily  accessions  of  new  Bank  notes  ;  and  we  know  no  reason 
why  the  talismanic  word  "Indiana"  should  give  currency  to  a 
slip  of  Bank  paper,  signed  by  an  unknown  President,  and 
Cashier,  any  more  than  "  Rhode  Island,"  or  "  Tennessee."  It  is 
quite  time,  that  the  community  bestowed  some  attention  to  this 
matter,  before  they  are  enveloped  in  a  mist  of  endless  confu- 
sion ;  for  at  the  present  moment,  there  is  neither  chart,  nor 
compass,  by  which  they  can  direct  their  course.  Obviously,  it 
is  the  duty  of  the  Bankers  in  Cincinnati,  to  ascertain  the  true 
value  of  the  Bank  notes,  which  they  receive  on  deposit,  and 
pay  out  again  to  their  customers.  Their  sanction  of  this  hetero- 
geneous circulation  is  an  implied  guarantee  of  its  soundness, 
and  the  public  so  regard  it. 

We  have,  perhaps,  dwelt  upon  this  subject  quite  long  enough 


to  wf  ary  our  readers,  and  we  now  relinquish  it.  How  long 
these  various  Banking  schemes  are  to  be  tolerated  by  the  com- 
munity, time  only  will  determine  ;  perhaps  some  flagrant  trans- 
action like  the  Merchants  and  Mechanics'  Bank  of  Oswego  and 
Syracuse,  will  alone  disclose  the  precipice,  on  the  margin  of 
which,  we  have  long  been  endangered ;  fortunate  will  it  be,  if 
any  timely  hint,  by  a  single  downfall,  should  warn  the  unwary, 
to  escape  the  peril. 

But,  where  are  we  to  look  for  succor  ?  There  is  but  one 
sure  point,  and  that  is  the  General  Government,  who  alone 
have  the  power  to  exercise  a  salutary  control  over  the  cur- 
rency of  our  entire  country,  by  the  adoption  of  such  measures, 
as  have  been  in  successful  operation  for  forty  years  of  our  ex- 
istence as  a  nation.  There  can  be  no  other  restraining,  no 
other  equalizing  power,  but  of  the  exercise  of  this,  we  are 
topeless,  in  the  present  generation.  Perhaps  in  the  chaos, 
which  ere  many  years  may  ensue,  our  domestic  exchanges  will 
become  so  deranged,  and  irregular,  that  public  opinion  will  de- 
mand relief,  through  the  agency  of  an  Exchequer  system.  One 
of  our  most  eminent  statesmen,  (whose  lamented  removal  from 
the  scene  of  his  earthly  labors,  the  Nation  still  deeply  mourns, 
In  the  present  crisis  of  our  Congressional  debates,  and  public 
excitement,)  has  left  us  invaluable  lessons  on  this  subject,  to 
which  we  ought  to  recur  for  instruction,  in  this  hour  of  our 
need  ;  and  with  a  few  extracts  from  these,  our  remarks  will  be 
closed. 

"It  is  undoubtedly  the  constitutional  duty  of  the  General 
Government,  to  see  that  a  paper  currency,  suitable  to  the  cir- 
cumstances of  the  times,  and  to  the  wants  of  trade  and  busi- 
ness, as  well  as  to  the  payment  of  debts  due  Government,  be 
maintained,  and  preserved :  a  currency  of  general  credit,  and 
capable  of  aiding  the  operations  of  exchange,  so  far  as  these 
operations  may  be  conducted  by  means  of  the  circulating  me- 
dium ;  and  there  are  duties  therefore  devolving  on  Congress, 
in  relation  to  currency,  beyond  the  mere  regulation  of  the  gold 
and  silver  coins." 

"Every  one,  who  looks  over  this  vast  country,  and  contem- 
plates the  commercial  connection  of  its  various  parts,  must  see 
the  great  importance  that  the  Exchanges  should  be  cheap,  and 
easy.    To  the  producer,  and  the  consumer,  to  the  manufac- 


55 


turer,  and  the  planter,  to  the  merchant,  to  all,  in  all  classas, 
this  is  a  matter  of  moment.  We  may  see  an  instance,  in  the 
common  articles  of  manufacture,  produced  in  the  North,  and 
sent  to  the  South  and  West,  for  sale  and  consumption ;  and  a 
state  of  exchange,  which  shall  enable  the  producers  to  receive 
payment  regularly,  and  without  loss,  is  indispensable  to  any 
useful  prosecution  of  this  intercourse.  Derangement  of  cur- 
rency and  exchange  is  ruinous.  The  notes  of  local  Banks,  will 
not  answer  the  purpose  of  remittance — and  there  can  be  no 
satisfactory  state  of  internal  trade,  when  there  is  neither  cheap- 
ness, nor  promptness,  nor  regularity,  nor  security  in  the  do- 
mestic exchanges." 

"  We  may  erect  Banks,  on  all  the  securities,  which  the  wit 
of  man  may  devise  ;  we  may  have  capital;  we  may  have  funds, 
we  may  have  bonds  and  mortgages ;  we  may  add  the  faith  of 
the  State  ;  we  may  pile  Pelion  upon  Ossa  ;  they  will  be  State 
institutions  after  all,  and  will  not  be  able  to  suppport  a  na- 
ional  circulation.  This  is  inherent  in  the  nature  of  things,  and 
in  the  sentiments  of  men.  It  is  in  vain,  to  argue  that  it  ought 
not  to  be  so,  or  to  contend,  that  one  Bank  may  be  as  safe  as 
another.  Experience  proves  that  it  is  so,  and  we  may  be 
assured  that  it  will  remain  so." 

"  We  have  in  actual  use  a  mixed  currency  ;  the  Coin,  circu- 
lating under  the  authority  of  Congress ;  the  paper,  under  the 
authority  of  the  States.  But  this  paper,  though  it  fills  so  great 
a  portion  of  all  the  channels  of  circulation,  is  not  of  general 
and  universal  credit :  it  is  made  up  of  various  local  currencies, 
none  of  which  has  the  same  credit,  or  the  sjinje  value,  in  all 
parts  of  the  country  :  and  therefore  theS^loqarctiWen6ie«  anr 
swer  but  very  loosely,  and  imperfectly  the  purposes  of  general 
currency,  and  remittance."  •   ::.!:*.    •  •'  ./  :    :    *. ; 

"  I  think  the  State  Banks  can  n€fvfcKfurhish*a  -  median!  fo^ 
circulation,  which  shall  have  universal  credit,  fuid  be  cvf,eq|ual 
value  everywhere.  I  think  they  have  n()  j»6v\;ej's,.tii\  fii'culties 
which  can  enable  them  to  restrain  'e'xce'ssVve  issues  of  paper- 
I  think  their  respective  spheres  of  action  are  so  limited,  and 
their  currencies  so  local,  that  they  can  never  accomplish  what 
is  desired  in  relation  to  Exchanges.  I  maintain  that  the  peo- 
ple of  this  country  are  entitled  at  the  hands  of  the  Government,, 
to  a  Bound,  safe,  and  uniform  currency ;  and  it  is  a  sentiment 


I  t  ▼• 


56 

deeply  infused  into  me ;  it  ib  a  conviction,  which  pervades 
every  faculty  I  possess,  that  there  can  be  no  settled  and  per- 
manent  prosperity,  of  the  commerce  and  business  of  the  coun- 
try, until  the  Constitutional  duty  of  Government  in  regard  to 
the  currency  be  honestly  and  faithfully  fulfilled." 

We  have  thus  imperfectly  delineated  the  practical  operations 
of  the  three  different  Banking  systems  of  New  England  New 
York,  and  the  Western  States,  leaving  our  readers  to  draw  their 
own  conclusions  as  to  the  relative  merits  of  each,  and  between 
the  pohcy  of  the  old  Incorporated  Banks,  the  Safety-fund  Banks 
and  the  Free  Banks.     Our  own  predilection  has  been  fully  ex- 
pressed, in  the  First  Part  of  these  remarks,  and  we  can  see 
nothing  m  the  modern  system  to  qualify  our  views,  or  change 
our  deliberate  opinions.     Others  may  think  differentlv,  and  we 
maybe  m  error;  but  our  conservatism  clings  tenaciously  to 
old  principles,  which  have  hitherto  proved   safe,  yielding  to 
others  the  hazard  of  entrusting  their  fortunes  in  the  buoyant 
bark  of  "  Onw^ard  Progress." 


1 1 


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.      .        .  ;  EBKATA. 

'^    On  page  21,  sixth  line' from  top,  read  specious  instead  of 
*^.spunous."    ....... 

V  Same.page,.tvven^^^      line  from  top,  read  scrutint/  instead 
of  "security."  ^ 


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